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20th Century 

Bank Accounting 


A TREATISE ON MODERN BANKING AS ILLUSTRATED 
IN THE BUSINESS TRANSACTIONS WHICH 
ACCOMPANY THIS TEXT 


FIRST EDITION 


By OSBORNE GARBER 

ASSISTED BY 

TEACHERS, BANKERS AND ACCOUNTANTS 


PUBLISHED BY 

South-Western Publishing Co. 
Cincinnati, O. 


Q2I 




Copyright, 1921 

SOUTH-WESTERN PUBLISHING CO. 
Cincinnati, Ohio 


fc WT 


JUN -4 1921 


P REFACE 

One or more banks are essential to the success of any community. A knowl¬ 
edge of bank accounting on the part of each individual in the community is 
of mutual advantage to the bank and the community. The purpose of this 
text and the practice set which accompanies it is to provide a knowledge of bank 
accounting. 

The discussion in the text is arranged in six divisions. The first division 
relates to the organization of a bank; the second, the business of a bank; the 
third, the internal organization; the fourth, the books of account; the fifth, the 
accounts; and the sixth, the Statement of Resources and Liabilities and the 
Statement of Profit and Loss. The practice set which accompanies the text 
contains a reproduction of the transactions which are performed by the bank, 
and correlates the discussion of the principles in the text and their practical 
application. 

First Division. The discussion in this division relates to the purpose of 
a bank, the three classes of banks—private, state and national, the Federal 
Reserve Bank, function of the reserve system, savings banks, trust companies, 
Morris-Plan Banks, and Farm-Loan Banks. The purpose of this discussion 
is to give the student a knowledge of the different methods of organization in 
connection with commercial banks, and the distinction between commercial 
banks and those banks which serve a special purpose. 

Second Division. The discussion in this division relates to the business 
of a bank, the business transactions performed by a bank, its profits, 
losses and operating cost, and the merchandise of a bank—cash and cash items, 
including the various forms of checks, bank drafts, money orders, notes, drafts, 
trade acceptances, certificates of deposit, bonds and other special forms of 
securities. The student needs this information if he is to understand the relation 
of these business forms to the work of the bank and the transactions performed 
by the various officers. 

Third Division. The discussion in this division relates to the internal 
organization of a bank. It includes the work of the executives, tellers and 
bookkeepers in the various departments. The work of each department is 
described so that the student will understand the work performed in each depart¬ 
ment and be better qualified to record the transactions as they are presented 
to him in the practice set. 

Fourth Division. The discussion in this division relates to the books of 
account in which the transactions of a bank are recorded. These include the 
various tellers’ proof sheets, the general proof sheet, the registers used in re¬ 
cording bank drafts, certified checks, cashier’s checks, certificates of deposit, 
loans and discounts, collections and remittances, the depositors ledger and the 
general ledger. The discussion is supported by illustrations so that the student 
may better understand their application to the work of the tellers and book¬ 
keepers. 

Fifth Division. The discussion in this division relates to the accounts 
necessary for recording the transactions of a bank. These include Cash, Loans 
and Discounts, United States Bonds, Other Bonds, Federal Reserve Bank Stock, 


4 


PREFACE 


Other Stock, Correspondent Banks, Federal Reserve Bank, Redemption Fund, 
Banking House and Lot, Real Estate, Furniture and Fixtures, Depreciation, 
Capital Stock, Surplus, Undivided Profits, Dividend, Profit and Loss, Cir¬ 
culation, Time Deposits, Demand Deposits, Cashier’s Checks, Certificates of 
Deposit, Certified Checks, Interest, Discount, Rediscount, Collection, Exchange, 
Safety Deposit Rent, Profit on Sale of Real Estate, Profit on Sale of Bonds, 
Operating Cost, and General Expenses. A knowledge of these accounts is 
necessary if the student is to understand the results to be obtained from bank 
bookkeeping. 

Sixth Division. The discussion in this division relates to the Statement 
of Resources and Liabilities, the Statement of Profit and Loss, and the entries 
to close the profit and loss accounts at the end of the fiscal period. The state¬ 
ments are illustrated and explained so that the student may have a working 
knowledge of their application. The information in this division will assist 
the student in interpreting the financial condition of a bank from the state¬ 
ment of the business. 

The student who has completed this banking set will understand banks 
and their relation to the community which they serve, the method of organizing 
banks, the transactions which they perform, the method of recording the transac¬ 
tions, and the method of preparing the statement of the business at the close of 
the fiscal period. This information will be invaluable to him as a citizen of the 
community, as a clerk in the bank, or as one of the officials of the bank. 


The Publishers. 


BANKS AND THEIR ORGANIZATION 


5 


BANKS AND THEIR ORGANIZATION 

§ 1. A Bank is a business organized for the purpose of making a profit by 
dealing in money and securities. Its principal profit results from the interest 
on money loaned and the purchase and sale of bonds and other securities. Banks 
are of great value to the community in which they are located because they 
provide a place for the safe-keeping of money and securities and make possible 
the “deposit and check” method of making payments, thus eliminating, to a 
great extent, the use of money as a medium of exchange. 

While a bank is organized for profit, yet it does not create wealth; it is 
not an industry; it does not carry on production; it can not of itself supply 
wealth to the community. The bank is a receptacle, a reservoir for the float¬ 
ing, liquid wealth of the community. It is an agency for the more efficient 
use and handling of money, but not for making wealth by any magical means 
or by creating deposits through loans. 

A bank may be conducted by an individual acting as a sole proprietor, 
or a group of individuals acting as a partnership or a corporation. The banking 
business in the United States is performed by private, state, and national banks. 
This distinction is based on the authority from which the bank obtains its right 
or privilege to do business. 

§ 2 A Private Bank is one conducted by an individual acting as sole, 
proprietor, or a group of individuals under a partnership agreement. A private 
bank is not incorporated and, except in a few states, its books are not subject 
to inspection by a representative of the state banking department. The credit 
of the individual or individuals who operate the bank is the only guarantee 
to its depositors that the funds on deposit will be handled in an honest and busi¬ 
nesslike manner. Only a small part of the general banking business is con¬ 
ducted by private banks. They usually deal in securities, real estate, loans, 
and other special investments. 

§ 3. A State Bank is a corporation organized for the purpose of engaging 
in the banking business; its charter is obtained from the state in which it does 
business. In order that the interests of its depositors may be properly safe¬ 
guarded, the books are subject to inspection by the properly authorized state 
officials. This inspection may be made quarterly or more often, depending 
on the laws of the state in which the bank is organized. With the exception 
of restrictions which may be placed on it by laws governing the organization 
of banks in the state in which it is operated, the nature of the business in a state 
bank is the same as that in a private bank. 

In some states, the deposits in state banks are guaranteed by the state. 
This guarantee is effected by taxing each bank a certain per cent of the business 
it does. The taxes collected form a fund with which to pay the depositors 
of a bankrupt bank. This plan encourages those who have surplus cash to 
deposit it in a bank because they know the amount deposited can be recovered 
from the state if the bank becomes bankrupt. However, it has no great at¬ 
tractions to the business man, because he has confidence in the officers of the 
bank with which he does business. 


6 


20TH CENTURY BANK ACCOUNTING 


§ 4. A National Bank is a corporation organized for the purpose of 
engaging in the banking business. Its charter is obtained from the National 
Government through the Comptroller of Currency instead of the state in which 
it does business. One of the chief purposes of national banks is to relieve the 
demand for paper money. The policy of the United States Government is 
to issue no paper money unless the gold or silver in which it is payable is in the 
vaults of the Treasury. Were this policy carried out and the business public 
supplied with all the paper money necessary for the successful transaction 
of business, it would require a large amount of gold and silver to be kept on 
deposit. The Federal Government has outstanding obligations, these being 
represented by long-time notes, usually referred to as bonds. All property of 
the Federal Government, as well as the property of each individual, is subject 
to sale to pay these bonds; for this reason, they are regarded as the very best 
class of securities. National banks may issue paper money provided they deposit 
with the Comptroller of Currency registered United States bonds as security. 
Should a national bank fail to redeem the paper money which it has issued, the 
Comptroller of Currency will sell the bonds deposited as security and redeem it. 
Paper money has no value aside from the fact that the Federal Government 
guarantees its payment. Since the Federal Government carries sufficient gold 
and silver in the Treasury to pay gold and silver certificates, and it guarantees 
the paper money issued by national banks, all paper money is accepted by the 
public without question. 

Before the organization of national banks, state banks, by the authority 
of the state in which they did business, were permitted to issue paper money 
payable by the bank issuing it. A tax of ten per cenq levied by the Federal 
Government on state bank currency, has caused this class of currency to be 
withdrawn from circulation. 

In order to afford the best protection to depositors of a national bank, 
a number of conditions are imposed in the charter granted by the Comptroller 
of Currency. The more important of these are as follows: the books are sub¬ 
ject to a rigid examination by a national bank examiner at such time as he may 
wish to examine them; the funds of the bank can not be loaned for a longer 
period than four months; loans can not be made with real estate as security; 
a limitation is placed on the amount of the loan to a stockholder of the bank; 
the Comptroller can require a statement of the bank’s business at the close 
of any business day; registered United States bonds must be deposited to guar¬ 
antee paper money issued by the bank; each bank must invest at least six per 
cent of its capital and surplus in stock of the Federal Reserve Bank; a redemp¬ 
tion fund of five per cent must be maintained with the Comptroller of Currency 
to redeem mutilated paper money; a certain per cent of the deposits must be 
kept in the vault of the bank in cash. These and many other conditions, both 
in regard to the organization and the operation of the bank, to a certain extent, 
offset the many advantages offered to national banks. 

One of the chief functions of the Federal or State Government is to pro¬ 
tect the financial interests of its citizens. For this reason, very stringent laws 
are made governing the operation of banks. This is necessary because of the 
confidential nature of the transactions with a bank. The more confidence the 
public has in the banks which serve it, the better it will be for all concerned, 
because money hidden away decreases the volume of circulation in the com¬ 
munity. Money deposited in a bank can be used by the officials of the bank 
in the interest of business for the community, hence will result to the good of all. 

§ 5. A Federal Reserve Bank is one authorized by the “Federal Reserve 
Act,” enacted by Congress in 1913. The purpose of this act is to provide addi¬ 
tional means for the issuing of paper money and to give the banks in each sec- 


BANKS AND THEIR ORGANIZATION 


7 


tion of the country better control of the money needed for the transaction of 
business in that section. This act is additional evidence that the Federal Gov¬ 
ernment wishes to protect the interest of each individual. Twelve reserve 
banks have been established, each bank controlling the banking business in a 
designated district. The location of each bank and the district which it serves 
are given in Illustration No. i on page 8. 

The following is a synopsis of the Federal Reserve Act: 

1. The Secretary of the Treasury, the Secretary of Agriculture and the 
Comptroller of Currency were authorized, as the Reserve Bank Committee, 
to locate the banks and designate the territory which each was to serve. The 
map in Illustration No. i shows the result of the work of this committee. These 
districts may be readjusted by the Federal Reserve Board which was created 
by the Act. 

2. The Federal Reserve Bank is a corporation receiving its charter from 
the Comptroller of Currency. The par value of each share of stock is $ioo.oo. 
The stock in each Federal reserve bank is subscribed for by the national banks 
in the territory which it serves, each bank being required to subscribe for stock 
equal to six per cent of its paid-up capital stock and surplus. State banks 
also have the privilege of subscribing for stock after complying with the con¬ 
ditions outlined in the Act. The Secretary of the Treasury may subscribe for 
stock providing sufficient capital is not provided by the subscriptions from 
national and state banks. The stock may also be offered for sale to the public 
at the discretion of the Secretary of the Treasury. 

3. The operations of each Federal reserve bank are controlled by a Board 
of Directors composed of three classes, known as Class A, Class B and Class C. 
Class A shall consist of three members who shall be chosen by, and be repre¬ 
sentative of, the stockholding banks. Class B shall consist of three members 
who, at the time of their election, must be engaged in their district in com¬ 
merce, agriculture, or some other industrial pursuit. Class C shall consist of 
three members who shall be designated by the Federal Reserve Board. No 
senator 01 representative in Congress shall be a member of the Federal Reserve 
Board, or an officer or a director of a Federal reserve bank. No director in 
Class B shall be an officer, director or employee of any bank. No director in 
Class C shall be an officer, director, employee, or stockholder of any bank. The 
directors in Classes A and B shall be chosen by election in the same manner as 
directors are chosen in other corporations. 

Each Federal reserve bank shall establish branch banks within the district 
in which it is located. These branch banks shall be operated by a board of 
directors under rules and regulations approved by the Federal Reserve Board. 

5. The capital stock of each Federal reserve bank shall be six per cent of 
the paid-up capital stock and surplus of all member banks, but can not be less 
than four million dollars. When a member bank increases its capital stock or 
surplus it must increase its subscription for Federal Reserve stock accordingly. 
Thus, if a member bank whose capital stock is $100,000.00 increases it to $200,- 
000.00, this member bank would have to subscribe for an additional $6,000.00 
of stock in the reserve bank. If a member bank reduces its capital stock or 
surplus, it must surrender stock in the Federal reserve bank in proportion to 
the reduction, and receive cash for the same. Shares of the capital stock of the 
Federal reserve banks owned by member banks can not be transferred or 
hypothecated. 


(Continued on page p) 


/Wo/Vr - ; N • dak. 


8 


20TH CENTURY BANK ACCOUNTING 



Illustration No. i. Map of Federal Reserve Bank Territory. 














BANKS AND THEIR ORGANIZATION 


9 


(Continued from page 7 ) 

# 6. Section Seven of the Federal Reserve Act specifies the following 
divisions of the net earnings of the reserve banks: 

“After all necessary expenses have been paid or provided for, the stock¬ 
holders shall be entitled to receive an annual dividend of six per centum on the 
paid-in capital stock, which dividend shall be cumulative. After the aforesaid 
dividend claims have been fully met, all the net earnings shall be paid to the 
United States as a franchise tax, except that one-half of such net earnings shall 
be paid into a surplus fund until it shall amount to forty per centum of the paid- 
in capital stock of such bank.” 

7. The Federal Reserve Board consists of seven members including the 
Secretary of the Treasury, the Comptroller of Currency, and five members 
appointed by the President of the United States and approved by the Senate. 
These five members who are appointed by the President must reside in different 
reserve bank districts and be men of wide business experience. The salary of 
each of these five officers is $12,000.00 per year, and the Comptroller of Cur¬ 
rency is allowed $7,000.00 per year for the extra duties on account of his con¬ 
nection with the Federal Reserve Board. These salaries and all other expenses 
of the Federal Reserve Board are paid by the reserve banks in proportion to 
the capital of each. The term of office of each of the five members is ten years. 
The members of this board are ineligible during the time they are in office and 
for two years thereafter to hold any official position or employment in any 
member bank. 

8. The Federal Reserve Board is authorized to examine the accounts, books 
and affairs of each Federal reserve bank; to require Federal reserve banks to 
rediscount paper of other Federal reserve banks; to suspend the reserve require¬ 
ments provided in the Federal Reserve Act; to supervise and regulate the 
issuance and retirement of Federal Reserve notes; to add to the number of 
cities in the Federal Reserve class; to suspend any officer or director of a reserve 
bank; to require the writing off of doubtful or worthless assets on the books 
of a reserve bank; to require bonds of the Federal reserve agents for the safe¬ 
guarding of collateral; and to have general supervision over all Federal reserve 
banks. 

9. Federal reserve banks may do a general banking business with member 
banks, but not with the public. They accept money on deposit from the United 
States Government and from member banks. They discount notes, drafts, 
trade acceptances, and bills of exchange. They issue currency to member banks 
upon receipt of Government bonds or commercial paper as collateral. They 
discount acceptances which are based on the importation, exportation or do¬ 
mestic shipment of goods, and which have a maturity at time of discount of 
not more than three months. 

10. The paper currency issued by the Federal reserve banks is known as 
“Federal Reserve notes.” It is made payable by the Federal reserve bank which 
issues it, and is secured by United States bonds or commercial paper; its pay¬ 
ment is guaranteed by the Federal Government. Federal reserve banks having 
circulating notes secured other than by United States certificates “shall pay 
for the first three months a tax at the rate of three per centum per annum upon 
the average amount of such of their notes in circulation as are based upon the 
deposit of such securities, and afterwards an additional tax rate of one-half 
of one per centum per annum for each month Until a tax of six per centum per 


10 


20TH CENTURY BANK ACCOUNTING 


annum is reached, and thereafter such tax of six per centum per annum upon 
the average amount of such notes.” 

A surplus quantity of money may be needed in a particular district for a 
specific purpose, but, when this has been taken care of, the money will come 
back into the reserve bank in the territory because of the interest which the 
member banks must pay for its use. 

§ 6. Function of the Reserve System. No bank can stand alone on 
its own resources any more than one individual can be entirely independent of 
others. If there are three banks which serve a given community and the 
depositors of one bank undertake to withdraw all their funds, this would not 
only exhaust the funds of the one bank, but would also affect the business of 
the other banks. If the three banks are organized to help one another and 
there is a tendency on the part of the depositors of one bank to withdraw their 
funds, the other banks can come to its assistance and thus avoid financial dis¬ 
aster for the three banks. 

The purpose of the reserve system is to form a more complete organization 
of the banks throughout the United States and thus permit them to work in 
accord. Bad crops in one community result in trouble for the bank which serves 
that community. Through the Federal reserve system, these banks can borrow 
from the reserve bank or other member banks in their reserve district, and thus 
avoid the necessity of forcing collection of notes given by their customers. In 
this way the business of the community may be best served because when it is 
necessary to make forced collection, someone must sell at a sacrifice. 

The reserve system works to the benefit of the farmer, the merchant, the 
manufacturer, and every line of industry in the country. If a farmer in Min¬ 
nesota has one thousand bushels of wheat for sale, but does not wish to place the 
wheat on the market on account of the low price, he will store it in an elevator, 
take a receipt and, using this receipt as collateral security, borrow money from his 
bank. If his bank is short of funds, it can rediscount this note with the near¬ 
est branch of the Federal Reserve Bank. If this branch is short of funds, it can 
rediscount with the reserve bank in Minneapolis. If the Minneapolis reserve 
bank desires to do so, it can rediscount with the reserve bank in Chicago, 
St. Louis, New York, or some other district. The same illustration will apply 
to the products of the farmer in all sections of the United States. 

The merchant or manufacturer can have each sale on account settled by 
trade acceptance, and discount this with his local bank in the same manner as 
the farmer discounts his note secured by the warehouse receipt as collateral 
security. The local bank which rediscounts a farmer’s note secured by collateral, 
or the merchant’s trade acceptance, will not make as great a profit, but it will 
make some profit because the Federal Reserve Board provides a low rate of 
interest on rediscounts. 

The reserve system is not intended to encourage speculation, hence redis¬ 
counts are not permitted where money is borrowed for speculative purposes. 
When there is a disposition on the part of the public to speculate too ex¬ 
tensively, the Federal Reserve Board discourages this by increasing the rate 
of discount to such an extent that speculation will not prove profitable. It 
can also curtail speculation by refusing to renew paper that has been redis¬ 
counted with reserve banks. 

The reserve bank system serves as a protection against panics in the same 
way that a reservoir of water serves as a better protection against fire than a 
cistern in each house. The reserve banks do for the member banks what each 
of the member banks do for the community in which each is located. The 
reserve banks do not create new wealth. They may accept property which is. 


BANKS AND THEIR ORGANIZATION 


ii 


not in the form of currency as collateral for currency, but sooner or later this 
currency will go back into the bank and the collateral will be returned to its 
owner. 

§ 7 . A Savings Bank accepts small amounts from depositors who wish 
to save a part of their earnings. The depositor in a savings bank may with¬ 
draw a part or all of his balance upon demand, but it is not subject to check. 
Interest is allowed on the average monthly balance and credited to the depositor’s 
account annually or semi-annually. The bank reserves the right to demand 
thirty or sixty days’ notice for withdrawals for its own protection in case all 
depositors should wish to withdraw their funds at one time. 

A savings bank may be operated as a private or state organization. Some 
state banks have a clause in their charters allowing them to do a general banking 
business and to conduct a savings department. National banks are permitted 
to conduct a savings department under regulations issued by the Comptroller 
of Currency. 

§ 8. A Trust Company is a corporation organized for the purpose of 
acting as agent in the same capacity as an individual. Some state banks have 
a clause in their charter permitting them to conduct a trust department in 
addition to a general banking business. As agent, the trust company or trust 
department acts as executor of estates, represents the owner of real or personal 
property, makes leases, collects rents, makes investments, collects coupons, 
acts as receiver for a bankrupt corporation, trustee for a mortgage given as se¬ 
curity for bonds, holding company for a combination of corporations, etc. 

Trust companies are subject to the laws of the state in which they do busi¬ 
ness. These laws are constructed with a view to protecting the interests of those 
who wish the trust company to act as agent. A “guaranty and trust” company 
prepares abstracts of titles to real estate and guarantees the title to the purchaser. 

§ 9 . A Morris-Plan Bank is a corporation organized to make loans to 
those who wish to borrow small amounts and do not have the security which 
will enable them to borrow from a state or national bank. A Morris-Plan bank 
does not do a general banking business, but its purpose is to make it possible 
for the honest employee to borrow needed funds at a reasonable rate of interest 
without having to place personal property in pawn or as collateral security 
through a chattel mortgage. The Morris-Plan banks are proving very popular 
in the industrial centers and are doing much to eliminate unscrupulous loan 
sharks. 

§ 10. Farm-Loan Banks are a special class of banks, provided by an 
Act of Congress to make it possible for the farmer to borrow funds for the pur¬ 
pose of purchasing a farm or farm equipment. The establishment of these 
banks is another instance of the Government’s interest in the welfare of the 
people. The Federal Reserve Bank, with its system of member banks, provides 
ample banking facilities for the operations of business, but does not provide 
for the farmer who wishes to borrow on longer terms of credit. 

Commercial banks accept deposits, discount commercial paper, buy and 
sell bonds, collect commercial paper, and perform the usual banking transac¬ 
tions. Trust companies, guaranty companies, Morris-Plan banks and Farm- 
Loan banks are organized for a special purpose and do not conduct a general 
banking business; they make long-time loans, loans under special conditions, 
and otherwise serve the community in a banking capacity that is outside that 
of a commercial bank. 


12 


20TH CENTURY BANK ACCOUNTING 


Summary. The foregoing discussion is given so that the student may 
know something of the banking system in effect in the United States. No at¬ 
tempt has been made to go into the details of the operations of the various 
classes of banks. Full information in regard to the banking laws in each state 
can be obtained from the Secretary of State at the state capital. Copies of the 
National Banking Act, the Federal Reserve Act, and the Farm-Loan Bank 
Act, can be obtained from the Superintendent of Documents, Government Print¬ 
ing Office, Washington, D. C. 


THE BUSINESS OF A BANK 


13 


THE BUSINESS OF A BANK 

§ 11. The Business Transactions performed by a bank differ from 
those performed in other lines of business in that cash is received or paid in 
each transaction. The term “cash,” as used in connection with bank trans¬ 
actions, includes money and checks, sometimes referred to as “cash” and “cash 
items.” Cash items are accepted as cash, but with the understanding that the 
one from whom they are accepted guarantees payment on presentation. 

§ 12. The Profits of a Bank consist of the interest collected for the use 
of its money loaned; the fees charged for collecting notes, drafts and checks; 
profit from the sale of stocks and bonds; rent, or profit from the sale of real 
estate; fees for services rendered as trustee, executor, administrator, etc.; rent 
of safety deposit boxes and storage space; and exchange fees received from the 
sale of bank drafts, letters of credit, and bills of exchange. There may be other 
profits, but the foregoing serve to illustrate the method by which the bank 
obtains its income. 

§ 13. The Losses of a Bank are as follows: interest paid depositors 
for the use of their money; interest paid to reserve banks or other banks for 
rediscounting paper; collection fees charged by other banks; losses from the 
sale of stocks and bonds; losses on real estate; and losses on notes, drafts or 
other obligations which can not be collected. There may be other losses, but 
the foregoing serve to illustrate some of the losses which may result in con¬ 
nection with the operations of a bank. 

§ 14. The Operating Cost of a Bank consists of the salaries of the ex¬ 
ecutives and employees; rent, or interest on the investment if the bank owns 
its own home; stationery; advertising; taxes; depreciation, etc. The operating 
cost of a bank does not differ materially from that of any other business. 

§ 15. The Merchandise of a Bank consists of cash and securities. Cash, 
from the viewpoint of the banker, may be divided into two classes: cash and 
cash items. Cash consists of the various kinds of paper money (issued by the 
United States Government, national banks, and reserve banks), gold, silver, 
nickel and copper coins. Cash items consist of checks, bank drafts, express 
and post-office money orders, and other business forms used in the place of 
money. Securities consist of notes, accepted drafts, trade acceptances, stocks, 
bonds, and other business forms which are evidences of indebtedness or value. 

§ 16. A Check is a written order by a depositor on his bank designating 
to whom he wishes the bank to pay a part or all of the cash which he has on 
deposit. Blank checks bound in a book are provided by the bank. Each check 
has a stub so that the depositor may keep a record of it and his account with 
the bank. The depositor should use the blanks provided by the bank because 
their use greatly facilitates the clerical work of the bank in connection with 
keeping his account. (See Illustration No. 2.) 

§ 17. A Certified Check. A check indicates that the depositor has cash 
in the bank, but it is not evidence of this fact. A certified check indicates that 
the depositor had the amount on deposit at the time the check was written and 
that the bank has taken the amount out of his account and is holding it for 
payment of the check on presentation. A check is certified by an authorized 
official writing or stamping across the face “Certified,” the amount, the name of 


H 


20TH CENTURY BANK ACCOUNTING 


the bank and the name of the o'fficial authorized to certify. A check tendered 
in payment of a note at a bank other than the bank on which the check is pay¬ 
able should be certified; a check given as a guarantee of good faith in the per¬ 
formance of a contract should be certified; a check offered as a deposit when 
opening a new account with a bank should be certified; there are many other 
reasons why a check should be certified, but these three are sufficient to illustrate 
the purpose. Many banks issue a cashier’s check in exchange for the customer’s 
check in preference to certification. 



Illustration No. 2 . Certified Check 

Explanation: The illustration indicates that George J. Birkel Co. is a depositor of the 
First National Bank of Los Angeles, California, and wishes this bank to pay to John A. Anderson 
$525.00. For some reason the George J. Birkel Co. wants Mr. Anderson to know that the 
check will be paid when presented. The statement made by the bank guarantees payment upon 
presentation, because the bank has taken the amount of the check out of the funds deposited by 
the maker of the check and has it available for payment when the check is presented. This form 
serves to illustrate the check defined in §16 as well as the certified check. 

§ 18. A Cashier's Check is a check drawn on a bank by its cashier. It 
is used in the payment of the operating expenses of the bank, in payment of 

{Continued on page 75) 



Illustration No. 2 a. Cashier’s Check 

Explanation: The illustration indicates that Charles Benson, cashier of the Security 
State Bank of Spokane, wishes to pay an obligation of $1,200.00 to John C. Epperson. The 
$1,200.00 mentioned in this check will be paid to Mr. Epperson or his order on presentation 
to the one who is authorized to pay funds belonging to the bank. 





































THE BUSINESS OF A BANK 


15 


the proceeds of notes, drafts or other business papers collected, in payment 
of the proceeds of^ notes discounted, and in payment of other obligations of 
the bank. Cashier s checks are sold to those who wish to use them as a means 
of sending cash through the mail in the same manner as a bank draft or money 
order. 


§ 19. Exchange is a check drawn by one bank against funds deposited 
with another bank; such checks are also referred to as “bank drafts.” Exchange 
is usually designated by the name of the city in which the paying bank is located. 
Thus, a check drawn on a bank in New Orleans is known as New Orleans Ex¬ 
change; one drawn on a bank in New York, as New York Exchange; one drawn 
on a bank in Chicago, as Chicago Exchange. Exchange is used extensively 
in the payment of obligations maturing in the larger cities where a collection 
charge is made on out-of-town checks. B, a merchant in Cincinnati, owes A, 
a merchant in New York. Instead of sending A his personal check, B will take 
his personal check to his bank and exchange it for a check payable by a New 
York bank. When A receives this check, he can deposit it with his bank without 
paying collection charges. Banks usually charge a small fee for issuing exchange. 



Illustration No. 3. New York Exchange. 


Explanation: The illustration indicates that Fred C. Webber, cashier of the First National 
Bank of Turlock, California, has instructed the Chase National Bank of New York City, N. Y., 
to pay to the order of the Union Lithograph Co., $365.20 from funds which it has on deposit. 
This draft indicates that a depositor of the First National Bank has exchanged his check with 
the bank for the bank’s check payable in New York City. 

§ 20. An American Bankers Association (“A. B. A.”) Check is a check 
drawn by a bank on the Bankers Trust Company of New York, N. Y. These 
checks are issued in denominations of $10.00, $20.00, $50.00 and $100.00, and 
are used quite extensively in the United States and foreign countries by travelers 
who do not like to carry large sums of money. A small fee is charged for 
each traveler’s check issued. When A. B. A. checks are received by the bank, 
either from a depositor or from some other source, they are sent to the New 
York correspondent bank for collection and credit. The New York bank will 
present them to the Bankers Trust Company for payment. 

§ 21 A Post-Office Money Order is a written order authorizing a post¬ 
master to pay the amount mentioned therein on presentation; the paying 
postmaster will require proper endorsement and identification. A post-office 














i6 


20TH CENTURY BANK ACCOUNTING 


money order is obtained by depositing with a postmaster the amount for which 
the money order is to be issued; a small fee is charged for issuing the money 
order. Post-office money orders are used for sending money by mail. Banks 
accept post-office money orders for deposit the same as any other cash item. 
Where there are a number of banks in the same city, it is customary to collect 
all post-office money orders through the clearing house. This avoids the neces¬ 
sity of each bank having to send a messenger to the post office to make collection. 

§ 22. An Express Money Order is a special form of check issued by 
the American Express Company for remitting money. It is made payable to 
the holder and can be cashed by him on presentation of an identification card 
or other means of identification. Express money orders are issued in competi¬ 
tion to post-office money orders. They are handled by the banks in the same 
manner as post-office money orders. 

§ 23. A Note is a written promise to pay cash on demand or at a desig¬ 
nated time. The note is signed by the one who is to pay it and is made payable 
to the one to whom it is to be paid. An individual, partnership, or corporation 
can issue and receive notes. If a definite date of payment is mentioned, it is 
known as a time note; if payable on demand, a demand note. A joint note is 
one signed by two or more persons. Notes are evidences of indebtedness and 
may be purchased and sold in the same manner as merchandise or other property. 
Banks receive notes as evidence of money loaned and for collection. 



Illustration No. 4. Promissory Note. 


Explanation : The note illustrated indicates that W. W. Payne is indebted to S. F. Bowser 
& Co. for $1,000.00. On August 10 he agreed to pay this amount within four months, collection 
to be made by the Farmers & Traders National Bank of Colebrook, N. H. The fact that this 
note authorizes payment at a designated bank does not mean that it can not be presented for 
collection by the payee at some other bank. 

§ 24. A Draft is a written order to pay a stated amount of cash to a desig¬ 
nated party on demand or at a specified time. It indicates that the one directed 
to pay the cash is indebted to the one who directs the payment. The draft may 
be made payable to the order of the one who directs the payment or to a third 
party. If the draft is payable on demand or at sight, it is usually referred to 
as a “sight draft;" if it is payable a designated number of days after presenta¬ 
tion, it is known as a “time draft." Drafts serve as an excellent collection 
medium where the debtor and creditor live in different localities. Drafts are 
received by banks in the same manner as notes. 


















THE* BUSINESS OF A BANK 


17 



Explanation: The draft illustrated indicates that James S. Mullen & Son, Chicago, Ill., 
are indebted to Fred J. Armstrong, Savannah, Mo., for an amount equal to or in excess of 
$250.00, and that Armstrong wishes James S. Mullen & Son to pay the $250.00 to the Second 
National Bank when the bank presents the draft. 

A time draft is in the same form except a certain time is stated in place of “At sight," and 
when the draft is presented, if it is accepted,, the drawee writes “Accepted," together with his name 
and the date, across the face of the draft. The name of the bank at which it is payable may also 
be indicated if desired. If, in this illustration, the time had been thirty days instead of sight, 
the draft would have read, “At thirty days sight" instead of “At sight,” and when presented, 
if accepted, it would have written across the face, “Accepted," the date, and “James S. Mullen & 
Son." 


§ 25. A Trade Acceptance is a time draft drawn by the seller of mer¬ 
chandise or other property on the buyer of the same, and accepted by the buyer 
at the time the sale is completed or within a few days thereafter. The prin¬ 
ciples involved are the same as those in connecton with a time draft, except 
the draft is accepted at the expiration of the term of credit while the trade ac¬ 
ceptance is accepted at the time of the sale. Trade acceptances have been given 

(Continued on page 18) 


TRADE ACCEPTANCE 

No .§62_ Fort Wayne, Ind.,.April.. 19 .. 

To John K. RensJ^ .8 t....Lftuis ....Mq.*_ 


On 


14 -..Pay to the order of. .. 

(date of maturity) 

S i.x ...Hundr.ed T^ . Dollars, ($ .620 • 20.) 

The obligation of the acceptor hereof arises out of the purchase of goods from the drawer. The drawee 
may accept this bill payable at any bank, banker or trust company in the United States which he may 
designate. 


Accepted at.. 


sYo.. 19 - 


Pay able at .. Bank \ Johnson, Oarvel & Murphy 

aa*/-.. . 



(SIGNATURE OK ACCEPTOR) 


BY._ 


By. 



Illustration No. 5a. Trade Acceptance 

Explanation: This illustration shows the trade acceptance resulting from a sale of mer¬ 
chandise by Johnson, Carvel & Murphy to John K. Renshaw. Since it is accepted, it is evidence 
of the obligation and may be used as collateral security, or sold. 


















































i8 


20TH CENTURY BANK ACCOUNTING 


preference by the Federal Reserve Board and are the one class of commer¬ 
cial paper which the holder can discount at a Federal reserve bank if a member 
bank refuses to discount them. Trade acceptances are accepted by banks as 
evidences of loans in the same manner as notes and time drafts; they are also 
accepted for collection. 

§ 26. A Certificate of Deposit is a receipt issued by a bank for cash 
which has been deposited with it. This is subject to withdrawal on demand 
or at the time stated in the certificate, on surrender of the certificate properly 
endorsed. It usually bears interest, and is not subject to check. 



Illustration No. 6. Certificate of Deposit. 

Explanation: The certificate illustrated indicates that A. M. Reilly has deposited $1,000. 
with the Farmers State Bank of Ericson, Nebr., payable to the order of J. R. Baker, receipt 
for which is acknowledged by James F. Epley, Cashier. If J. R. Baker does not demand this money 
before six months from March i, at the expiration of that time he will receive $1,020.00, which 
is the amount deposited and 4% interest. J. R. Baker may withdraw the money at any time 
upon presentation of the certificate, but can not collect interest unless the amount remains on 
deposit for six months or longer. 

§ 27. A Foreign Bill of Exchange is exchange payable outside the 
country in which it is drawn. It is usually issued in duplicate, the first or 
original of which reads “Pay this first of exchange, the second being unpaid 
and the duplicate, “Pay this second of exchange, the first being unpaid.” They 
are mailed by different routes so that one will be sure to reach the destination. 
The bill presented first for acceptance or payment is recognized, and its accept¬ 
ance or payment cancels the contracted indebtedness. Foreign bills of exchange 
are discounted by the bank whether payable on demand or at a designated time. 

§ 28. A Certificate of Stock is a printed form issued by a corporation 
to a stockholder as a receipt for property invested. It shows the date of issue, 
number of shares, and in some cases the par value of the stock. The certificate 
is signed by the legally authorized officers, usually the President and Secretary. 
It is not considered the best policy for a bank to buy and sell certificates of 
stock, but they are often accepted as collateral security for loans. 

§ 29. A Bond is a long-time note arranged in a special form. Bonds 
are usually issued in denominations of $100.00, $500.00 or $1,000.00, usually 
secured by mortgage on real or personal property. The mortgage is held in 
trust by a trust company, If the interest or bonds are not paid as per agree¬ 
ment, the trust company will sell the property described in the mortgage and 
pay the indebtedness. Bonds issued by the United States Government, the 
state governments, counties and municipalities, are secured by all the real or 

















THE BUSINESS OF A BANK 


T 9 


personal property owned by the citizens in the designated territory. Many 
banks have a bond department in which they buy and sell bonds. The large 
issues of Liberty and Victory Bonds during the World War have made this a 
profitable department. Banks also accept bonds as collateral security. 



Explanation: The draft illustrated indicates that the Canton Bank in San Francisco owes 
the Chinese-American Bank in Honolulu an amount equal to or in excess of $20,000.00, and that 
$20,000.00 is to be paid to A. B. Sheron upon presentation. This draft was drawn in Honolulu 
and two copies mailed to A. B. Sheron. The one illustrated is No. 2 of the series. Upon pres¬ 
entation to the Canton Bank, with the proper endorsement and identification, A. B. Sheron can 
collect the amount mentioned in it. 



INCORPORATED UNDER THE LAWS OFTHE STATE OF COLORADO 


CAPITAL STOCK $2,000,000 
2.000 000 SHARES $i°°EACH 


(SEAL) 


Vresub.nt. 


Xrri'eUi'tj 


Illustration No. 8. Certificate of Stock. 






























20 


20TH CENTURY BANK ACCOUNTING 



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Illustration No. 9. Bond 


§ 30. Many Other Special Forms, given as evidences of indebtedness 
or ownership, are handled by the banks. Those in most general use are dis¬ 
cussed here so that the student may know something of the cash, cash items 
and securities involved in connection with bank transactions. A sufficient 
number are illustrated so that the student may visualize the definitions. 













THE INTERNAL ORGANIZATION OF A BANK 


21 


THE INTERNAL ORGANIZATION OF A BANK 

§ 31. In General. A bank is a business organized for profit. If its 
operations are to be successful it must have sufficient capital and an experienced 
a pd well-balanced organization. This organization may be divided into three 
divisions: executives, tellers, and bookkeepers. 

§ 32. Executives. The affairs of an incorporated bank (state or national) 
are controlled by a board of directors elected by the stockholders in the same 
manner as any other corporation. Each stockholder is entitled to one vote for 
each share of stock he owns. The board of directors elect from their number 
the president, one or more vice-presidents, the cashier, and one or more assistant 
cashiers. These officers constitute the executive force of the bank and are re¬ 
sponsible to the board of directors for its operation. The duties of each officer 
will depend largely upon the regulations of the board of directors and the by-laws. 

§ 33. Tellers. The routine business of the bank is performed by the 
tellers, who are appointed by an executive officer of the bank. The number of 
tellers required will depend upon the volume of business transacted. Where 
only one teller is needed, his duty will be to accept cash from those who wish 
to deposit it in the bank; pay cash on checks which are presented for payment; 
accept notes, drafts, and trade acceptances from those who wish to leave them 
for collection; give credit for loans which have been approved by the cashier 
or president and board of directors; issue exchange on other banks; receive 
cash in payment for loans which are due; pay cash to those whose paper has 
been collected by the bank; and perform other duties which are not performed 
by the cashier and president. Where a number of tellers are needed to take 
care of the business, the ‘ ‘receiving teller” receives deposits; the “paying teller” 
pays cash on checks presented for payment; the “note teller” receives notes 
left for collection, and for discount after the approval of an executive officer 
and the board of directors; the “exchange teller” issues exchange on other 
banks. The duties of the tellers are discussed more in detail in the discussion 
of the various departments. 

§ 34. Bookkeeper. The bookkeeper records the transactions which are 
completed by the tellers and the executive officers of the bank. If only one 
bookkeeper is required, he would record the transactions with depositors, the 
loans made and collected, the notes received for collection and those collected, the 
cashier’s checks issued by the cashier, the exchange issued on other banks, 
transactions with other banks in connection with the collection of checks and 
other commercial paper, the purchase and sale of bonds and real estate, and 
the operating expenses. If more than one bookkeeper is needed, the work in 
the bookkeeping department would be so arranged that each could take care 
of some particular class of transactions—one, the depositors; one the loans; 
one, the collections; etc. 

§ 35. Departments. Where the volume of business is large, it is neces¬ 
sary to divide the work of the various officers, tellers and clerks into depart¬ 
ments. The number of departments will, of course, depend entirely upon the 
volume of business. Based on the nature of the transactions, the work in the 
bank may be classified into nine departments, as follows: receiving, paying, 
exchange, collection, loans and discounts, transit, safety deposit, bonds, and 
bookkeeping. 


22 


20TH CENTURY BANK ACCOUNTING 


RECEIVING DEPARTMENT 

§ 36. This Department is in charge of one or more receiving tellers. 
The duty of the receiving teller is to receive the cash and cash items de¬ 
posited in the bank and to credit each depositor in his pass book (Illustra¬ 
tion No. io) for the amount of his deposit. Each depositor lists the cash and 
cash items deposited by him on a deposit ticket (Illustration No. n) provided 
by the bank; the receiving teller counts and inspects the cash, and verifies 
the endorsements and listing of the cash items and the addition of the deposit. 
The receiving teller will not accept a deposit from a new customer without 
the approval of an executive officer because the officials of the bank must know 
that each account is opened for a legitimate business purpose. When a new 
account is opened, the receiving teller requires the depositor to write his name 
on a signature card (Illustration No. 12 ) in the same form as he expects to 
sign checks. 

When a collection charge is made on a cash item payable outside of the city, 
the receiving teller indicates on the deposit ticket and in the depositor’s pass 
book the amount of the charge. On the first of each month, the bank will render 
the depositor a bill for the amount of these charges. Collection charges are 
made only on those checks which can not be collected without cost to the bank. 


Dr. Merchants National Bank 



/£ 


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7 7? 


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2 6~C 




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2 c? ^^7 





7 7 327(Z 

72- 


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In account with 


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Illustration No. 10 . Pass Book. 


Explanation: The first entry on the left shows the balance forwarded from the preceding 
page; the second entry, a deposit entered by a receiving teller who is known as “S. B.”; the 
third entry, another deposit; the fourth entry, a collection entered by teller “F. N. F.” in the 
collection department; the fifth entry, the proceeds of a note discounted, entered by teller “J. 
E. K.” in the loans and discounts department. The ruling indicates that the book was balanced 
November 30. The number and amount of canceled vouchers returned are entered on the right 
side and the balance carried down below the ruling on the left side. Some banks enter deposits 
on both sides of the pass book and balance the pass book by entering the balance on the line 
below the last deposit, ruling, and carrying the balance down. The detailed statement rendered 
the customer is explained on page 58. 


§ 37. Nature of Deposits. The greater part of the cash received by 
banks comes through its depositors. The term “cash” here includes cash (cur¬ 
rency and coins) and cash items (checks, etc.). The cash items received from a 












































THE INTERNAL ORGANIZATION OF A BANK 


23 


depositor are divided into four classes: 
(a) checks payable by the bank, re¬ 
ceiving the deposit; (b) checks pay¬ 
able by other banks in the same 
city; (c) checks payable by banks 
outside of the city; and (d) special 
forms of checks, including post-office 
money orders, express money orders, 
and travelers’ checks. 


Explanation: The illustration indicates 
that the Mission Woolen Mills, on Decem¬ 
ber 10, deposited with the Merchants Na¬ 
tional Bank $704.50; $200.00 of this is cur¬ 
rency, and $504.50 cash items. The numbers 
at the left of the amount of the three checks 
are the numbers of the banks as explained 
in §60. 


Illustration No. 11. Deposit Ticket. 

Explanation: The illustra¬ 
tion indicates that T. L. Staples 
has opened an account with the 
Merchants National Bank and 
that his check will be signed as 
indicated by his signature on the 
card. His address, name of the 
person by whom identified, tele¬ 
phone number, and date of open¬ 
ing the account are given for 
future reference. The card is 
punched to fit a filing device 
in which it will be filed alpha¬ 
betically. 

Illustration No. 12. Signature Card. 

§ 38. Provisional Credit. Cash items received from a depositor are 
accepted with the understanding that they will be paid when presented. If a 
cash item is not paid when presented for payment, or,if it is lost in the process 
of collection, the amount will be charged to the depositor. The bank will accept 
cash and cash items from a depositor and allow him to draw checks against the 
deposit without discrimination, but the depositor must be prepared to stand 
the loss if a cash item is not paid. A statement to this effect is usually printed 
in the front of the pass book so that there may be no possibility of misunder¬ 
standing. 

There are many reasons why cash items may not be paid when presented. 
Chief among these is the fact that the maker does not have sufficient funds to 
his credit at the time the check is presented for payment. Other reasons are 










































24 


20TH CENTURY BANK ACCOUNTING 


incorrect signature, incorrect dating, incorrect endorsement, signature forged, 
etc. When a cash item is lost in the mail, the bank provides the depositor with 
all the facts in connection with it so that he can secure a duplicate. When a 
cash item is not paid, it is returned by the bank to the depositor and he is re¬ 
quired to take it up by issuing a check for the same amount. 

§ 39. Mutilated Money. The receiving teller will come in contact with 
paper money which is so badly worn that it should be withdrawn from circu¬ 
lation. Such money will be redeemed upon presentation to the authority which 
issued it. Paper money is issued by the United States Treasury, national banks 
and the Federal reserve banks. Mutilated paper money issued by reserve banks 
is sent to the reserve bank under which the member bank operates. Other 
paper money is sent to the United States Treasury at Washington, D. C. New 
paper money is issued in exchange for mutilated paper money sent to the reserve 
banks or the Treasury. (§103.) 

Mutilated money sent for redemption must be assorted according to the 
source of issue and the denominations of each kind placed together. It is then 
put up in packages according to specifications, with the name of the bank de¬ 
positing it written on the outside of the package. The clerical work in connec¬ 
tion with the assembling of mutilated money is a source of considerable expense 
to the bank, but, like much of the other clerical work in the bank, is performed 
without cost to its customers. 

§ 40. Disposition of Cash and Cash Items. Cash received from a 
depositor is placed with the other cash in the bank. Checks (cash items) are 
not cash and the bank must present them (except those payable by it) to the 
bank on which they are drawn in order to collect the cash. It is not necessary 
to present checks payable by the bank because the amounts of these can be 
charged to the accounts of the depositors who signed them. Checks payable 
by another bank in the city can be collected by personal presentation; the 
collection of these checks is usually made through the clearing house as explained 
in § 71. Presentation of a check payable by a bank located in another city is 
made through the mail; the collection of these checks is effected through clear¬ 
ing arrangements made with other banks as explained in § 57. 

§ 41. The Receiving Teller’s Report. At the close of each business 
day, the receiving teller makes a report of the transactions which he has com¬ 
pleted during the day, and proves the correctness of his work. The money is 
placed in the vault and the checks are given to the proper department to be 
presented for collection. When this work has been completed, he passes 
his proof sheet to the general bookkeeper to be recorded on the general proof 
sheet. Since each teller and bookkeeper must prove his own work before any 
papers are allowed to leave the bank, it is necessary for banks to close at two 
or three o’clock in the afternoon in order to provide each clerk with sufficient 
time to make his proof. Should the bank continue to do business until the closing 
time of other business concerns, the tellers and clerks would have no opportu¬ 
nity to prove their work without working overtime. 


PAYING DEPARTMENT 

§ 42. This Department is in charge of one or more paying tellers. If 
there is only one paying teller, he has charge of all the cash in the bank and 
gives out all cash which the bank is required to pay. Only a limited amount 
of cash is kept on the paying teller’s desk, the balance being in the vault for 
safe-keeping. The work of the paying teller is more important than that of 


THE INTERNAL, ORGANIZATION OF A BANK 


25 


the receiving teller. If an error is made in a deposit, it can be corrected by 
communicating with the depositor; but if an error is made in paying cash, it 
is difficult to correct because few will report an error of this kind, especially 
if it is in their favor. The paying teller must be familiar with the signature of 
each depositor to avoid paying money on forged checks. He has the privilege 
of requiring identification before paying money on checks, but should be so 
well acquainted with the customers of the bank that he will seldom have occa¬ 
sion to require identification. The paying teller must be a diplomat if he wishes 
to keep all the customers of the bank happy and at all times safeguard the 
interests of the bank. 

§ 43. Evidence of Payment. The paying teller will require a receipt 
from -the one to whom he pays cash belonging to the bank. If a depositor of 
the bank wishes to withdraw a part or all of the money he has deposited with 
the bank, he must present to the paying teller a check for the amount desired. 
This check may be made payable to himself or to “Cash.” He receipts for the 
cash by signing his name on the back of the check. The same plan is followed 
by the teller when paying a check drawn on another bank, a post-office or express 
money order, certificate of deposit, or any other form of written order to pay 
money. The teller will not pay cash to anyone with whom he is not personally 
acquainted. A stranger must be identified and have the check endorsed by the 
one who identifies him. 

The paying teller may receive as evidence of his payments the four classes 
of checks which are received by the receiving teller, but the majority will be 
checks payable by his own bank. It is customary for business concerns to deposit 
all checks received and to withdraw cash from the bank by checks drawn on the 
bank. A collection fee is usually charged for cashing checks payable by banks 
outside of the city. 

§ 44. The Paying Teller’s Report. At the close of each business day, 
the paying teller makes a report of the transactions which he has completed 
during the day. This report is proved to be correct before it leaves his possession. 
The amount of currency on his desk at the beginning of the day, plus the ad¬ 
ditional cash received from the vault during the day, minus the amount of checks 
which he has paid, should equal the balance of cash on his desk. If he has paid 
twenty dollars in cash on a check which orders him to pay only ten dollars, 
his proof will not balance by ten dollars. The cash on hand at the close of the 
day is placed in the vault for safe-keeping and the checks are given to the proper 
departments. 


EXCHANGE DEPARTMENT 

§ 45. This Department is in charge of an exchange teller who issues 
and records all exchanges sold by the bank and collects and records the fees 
for issuing the same. As explained in § 19, “exchange” is a technical term 
applied to a check drawn by a bank on funds deposited with another bank. 
Exchange issued on a bank in a country other than the United States is known 
as “foreign exchange;” exchange issued on a bank in the United States is known 
as “domestic exchange.” 

§ 46. Evidence of Payment. The exchange teller receives cash for each 
bank draft which he issues and the fees for issuing the same. He requires the 
purchaser to fill out a blank (Illustration No. 13) which provides the necessary 
information for issuing the exchange; the purchaser designates the one to whom 


26 


20TH CENTURY BANK ACCOUNTING 



the exchange is to be made payable. The 
facts in connection with each exchange 
are recorded before it is given to the 
purchaser. At the close of the business 
day, the exchange teller will have on 
his desk cash (currency and cash items) 
equivalent to the total exchange issued 
during the day and the total fees for 
issuing the same. 


Explanation: The illustration indicates 
that the Crescent Corset Co. wishes to purchase 
a New York exchange for $365.00 to be made 
payable to Fay Barnett. The bank charges 35 
cents for issuing the exchange. It is evident that 
a check payable by a New York bank will be 
more convenient for Fay Barnett than a check 
signed by the Crescent Corset Co. 

Exchange Wanted Blank 


§ 47. The Exchange Teller’s Report. The exchange teller prepares 
a report of the transactions he has recorded during the day, showing the re¬ 
ceipts, disbursements, and currency on hand at the beginning of the day and 
at the close of the day. He distributes the cash items to the other departments 
and places the cash in the vault. 

The exchange teller may issue certificates of deposit and cashier’s checks 
and attend to the certification of checks. If work of this nature is assigned to 
him, the transactions are recorded in the same manner as those relating to the 
issuing of exchange. His daily report will show the certificates of deposit and 
cashier’s checks issued and the checks certified during the day in addition to 
the exchange. 


LOANS AND DISCOUNTS DEPARTMENT 

§ 48. This Department is in charge of a note teller who receives, re¬ 
cords and collects the notes, time drafts and trade acceptances which come 
to the bank as evidences of cash loaned, and the interest in connection with 
the loans. Each loan is approved by the president or cashier and the board 
of directors before it is completed by the teller. If the loan is made to a depositor, 
he receives credit for the proceeds in his pass book and in the depositors ledger; 
if it is made to one who is not a depositor of the bank, he is given cash or a 
cashier’s check in payment of the proceeds. 

Security for the payment of a loan may be personal or collateral. Per¬ 
sonal security is given by having the surety sign the note with the maker or 
endorse it. In either case the surety guarantees payment. Collateral security 
is effected by giving as surety for the loan stocks, bonds, or other written ev¬ 
idence of ownership. The collateral is described in a collateral note (Illustration 
No. 14) given as evidence of the loan. This collateral may be attached to the 
note or filed separate from it. Private banks sometimes accept real estate 



















THE INTERNAL ORGANIZATION OF A BANK 


27 


or personal property as collateral security. National banks are not permitted 
to do this. The legal requirements in connection with making loans secured 
by personal or real property make this class of security undesirable for banks. 



Explanation: The illustration indicates that Irvin Hague has borrowed $5,000.00 from 
the Merchants National Bank and deposited as collateral security the certificate of stock de¬ 
scribed in the note. The bank is authorized to sell this stock if Mr. Hague does not pay the note 
when it is due. 

§ 49. Financial Statement. The Federal Reserve Board recommends 
that each bank which is a member of the Federal Reserve Bank system re¬ 
quire a financial statement from each person, firm or corporation that borrows 
money from it. Illustration No. 15 shows the information usually required 
on this statement. With this information available, the officials of the bank 
will be in a better position to extend credit to a borrower. 

§ 50. Loans and Discounts Teller’s Report. The note teller in charge 
of the loans and discounts department records and files the notes, drafts and 
trade acceptances accepted for discount as they are received. He prepares 
and mails notices for loans and discounts a short time before they are due so 
that the maker may be reminded of the due date. He accepts cash or cash items 
from the maker in payment for loans which are due. At the close of the day, 
he proves his work on a proof sheet, which goes to the general bookkeeper to 
be recorded on the general proof sheet. 

§ 51 . Rediscounts. A bank may sell the notes, drafts or trade accept¬ 
ances which it holds as evidences of loans; this sale is referred to as a “redis¬ 
count.” Banks which are members of the Federal Reserve Bank system 

{Continued on page 29 ) 



















28 


20TH CENTURY BANK ACCOUNTING 


financial statement T 0 THE FIFTH-THIRD NATIONAL BANK (corpor.«io„) 

corporate name The Keystone Manufacturing Company 


BUSINESS 

Manufacturers of automobiles 


MAIN OFFICE 

Detroit. Michigan location of plant Detroit. Mich. 


BRANCHES 

Cincinnati. Ohio St. Louis. Mo. 



FOR THE PURPOSE OF PROCURING CREDIT FROM TIME TO TIME WITH YOU. FOR OUR NEGOTIABLE PAPER OR OTHERWISE. WE FURNISH THE 

FOLLOWING AS A TRUE AND CORRECT STATEMENT OF OUR FINANCIAL CONDITION ON. 9 . .19. 

AND HEREBY AGREE TO NOTIFY YOU IMMEDIATELY IN WRITING. OF ANY MATERIALLY UNFAVORABLE CHANGE IN OUR FINANCIAL CONDITION. IN THE 
ABSENCE OF SUCH NOTICE OR A NEW AND FULL WRITTEN STATEMENT. THIS IS TO BE CONSIDERED AS A CONTINUING STATEMENT. AND THAT OUR 
PECUNIARY RESPONSIBILITY HAS NOT FALLEN BELOW THE CONDITION HEREIN SET FORTH AND IT IS HEREBY EXPRESSLY AGREED THAT UPON APPLICA¬ 
TION FOR ADDITIONAL CREDIT OR RENEWAL THIS STATEMENT AND INFORMATION SHALL HAVE THE SAME FORCE. AND EFFECT AS IF DELIVERED AS AN 
ORIGINAL REPORT OF OUR FINANCIAL CONDITION AT THE TIME SUCH ADDITIONAL CREDIT OR RENEWAL IS REQUESTED. 


ASSETS 

LIABILITIES 

CASH ON HAND 



105 

00 

BILLS PAYABLE. (NOTES) 

FOR MERCHANDISE 


5 

M 

O 

o 

OC 

CASH IN BANK 


7 

845 

00 

BILLS PAYABLE FOR BORROWED 

MONEY TO OWN BANKS 





BILLS RECEIVABLE OF CUSTOMERS. 

DUE WITHIN 90 DAYS 


6 

805 

18 

BILLS PAYABLE FOR BORROWED 

MONEY FOR PAPER SOLD 





BILLS RECEIVABLE OF CUSTOMERS. 

DUE BEYOND 90 DAYS 


1 

444 

82 

BILLS PAYABLE TO DIRECTORS 

OR STOCKHOLDERS 





ACCOUNTS RECEIVABLE, ALL GOOD. 
OWING FROM CUSTOMERS 


23 

000 

0Q 

OPEN ACCOUNTS NOT DUE 


15 

000 

OC 

MERCHANDISE, FINISHED. 

AT ACTUAL PRESENT CASH VALUE 


20 

000 

00 

OPEN ACCOUNTS PAST DUE 





MERCHANDISE. UNFINISHED. 

AT ACTUAL PRESENT CASH VALUE 


20 

000 

00 

ACCOUNTS OWING DIRECTORS 

OR STOCKHOLDERS 





RAW MATERIAL 


18 

000 

00 

DEPOSITS AND OTHER TRUST FUNDS 





TRADE ACCEPTANCES OWNED 


2 

290 

00 

TRADE ACCEPTANCES PAYABLE 


1 

107 

45 






Accrued Payroll 


1 

592 

5i 






Accrued Interest 


8 

000 

00 











TOTAL QUICK ASSETS 


99 

490 

00 

TOTAL CURRENT LIABILITIES 


30 

700 

00 

STOCKS. BONDS AND INVESTMENTS 





MORTGAGES AND LIENS ON REAL 
ESTATE DUE 





MACHINERY AND FIXTURES 


98 

500 

00 

BONDS 


116 

000 

00 

REAL ESTATE, 

i 

122 

500 

00 

CHATTEL MORTGAGES 





ACCOUNTS AND BILLS RECEIVABLE, OW- 
ING FROM OFFICERS AND EMPLOYEES 





DUE TO CONTROLLED OR ALLIED 
CONCERNS, For Merchandise 





DUE TO CONTROLLED OR ALLIED 
CONCERNS. For Advance* 





BILLS RECEIVABLE. OWING FROM 
DIRECTORS OR STOCKHOLDERS 





ACCOUNTS RECEIVABLE. OWING FROM 
DIRECTORS OR STOCKHOLDERS 


1 

000 

oq 






DUE FROM CONTROLLED OR ALLIED CON¬ 
CERNS. FOR MERCHANDISE 










DUE FROM CONTROLLED OR ALLIED CON¬ 
CERNS. FOR ADVANCES 










CAPTTAL STOCK OUTSTANDING 
PREFERRED 





NOTES AND ACCOUNTS RECEIVABLE. 6 
MONTHS OR MORE PAST DUE 


1 

235 

65 

CAPITAL STOCK OUTSTANDING 

COMMON 


150 

000 

00 

■Deferred Charges 



764 

35 

/ SURPLUS 


12 

790 

00 

Goodwill 


50 

000 

0C 

RESERVES / UNDIVIDED PROFITS 


40 

000 

00 






( DEPRECIATION 


24 

000 

00 











TOTAL 


373 

490 

0C 

TOTAL 


373 

490 

00 


I. HEREBY SOLEMNLY DECLARE AND CERTIFY THAT THE ABOVE IS A TRUE STATEMENT OF OUR BUSINESS 

corporate name.. .a. 

date signed . January .25.19_ by _ ./yy> 

(Office* Title Mu*t Be Gives) 

NOTE—IF YOU HAVE ANY DIFFICULTY IN FILLING IN THE FOREGOING STATEMEN 
ANY OTHER OFFICER OF THIS BANK IS PREPARED TO EXTEND YOU COURT! 

YOUR CO-OPERATION AND ACQUAINTANCE WITH OUR CREDIT METHODS. 




President. 

QUESTIONARY, THE CREDIT DEPARTMENT OR 
3S AND INTELLIGENT SERVICE; IN FACT. WE SOLICIT 


Illustration No. 15. 

Financial Statement Submitted to the Bank by a Borrower. 




















































































THE INTERNAL ORGANIZATION OF A BANK 


29 


{Continued from page 27) 

rediscount their paper with the reserve bank or branch reserve bank under which 
they operate; the Federal Reserve Board fixes the rate of interest to be charged 
on rediscounts. Each member bank is given a credit rating and can rediscount 
commercial paper up to this amount. 

Banks which rediscount with the Federal Reserve Bank have the priv¬ 
ilege of taking up the rediscounted paper at any time before maturity; they 
are required to pay it at maturity. There is a contingent liability on paper 
rediscounted by the bank because of the endorsement. This should be shown 
in connection with the loans and discounts on the Statement of Resources and 
Liabilities. 


COLLECTION DEPARTMENT 

§ 52. This Department is in charge of a note teller who receives, records 
and collects notes, drafts, trade acceptances and other commercial paper ac¬ 
cepted by the bank for collection. Commercial paper accepted for collection 
is not the property of the bank, and the only obligation it assumes is to use 
its best efforts for collection. A fee is charged for the service rendered in con¬ 
nection with the collection of commercial paper. 

§ 53. The Process of Collection. Commercial paper accepted for 
collection and payable in the city in which the bank is located is kept on file 
in the bank; commercial paper payable outside of the city is sent to a corre¬ 
spondent bank or the bank at which it is payable for collection. The note teller 
in charge of collections sends a notice to the payer of each paper a few days 
before it is due. When collection is made, he sends a notice to this effect to the 
one who left it with the bank for collection. If the collection is made for a depos¬ 
itor, he is instructed to bring his pass book for credit; if he is not a depositor, 
a cashier’s check for the proceeds accompanies the notice of collection. 


Explanation: This is the re¬ 
port of a collection made by O. 
Garber, cashier of the Merchants 
National Bank, of a note which has 
been left at the bank by the Cope 
Electric Co. The number of the 
paper, according to the Cope 
Electric Co.’s records, is given in 
the first column at the left; the 
date the note was received for col¬ 
lection, in the second column; the 
date of the paper, in the third 
column; time, in the fourth column; 
information in regard to protest, 
in the fifth column; interest, in the 
sixth column; date due, in the 
seventh column; and amount to 
be collected, in the eighth column. 
This information is for the book¬ 
keeper of the Cope Electric Co. 
when he makes the entry for the 
collection. The Merchants Na¬ 
tional Bank charges fifty cents for 
making the collection. The Cope 
Electric Co. is instructed to present 
their pass book and receive credit 
for the proceeds. If the Cope Electric Co. had not been a depositor of the bank, a 
cashier’s check for the proceeds would have accompanied the report. 



NOTICE OF COLLECTION 

The Merchants National Bank 


Received From 

Date Deo. 10, 192 Our No. 245 


Cope Electrio Co. 

Centerville 





Favor of Cope Electric Co. 

Address Centerville 


Maker 

Earl 

Jesse 


Address Centerville 


Your No. 

Dot# of Letter 

Date of Note 

Time | Protest 

Int. 

Due 

AMOUNT 

105 

Dec.2 

Oct .11 

60 dsl No 


Dec. 10 

50 

50 

Instruction! 



less collection ohargt 

3 

50 






Interest 



Remitted 


Returned 

Credited 

Total 

Less Exchange 

50 

00 

Enclosed Draft No. 

On 


Fob 



Presented 



Notified Present 

pass book 

for credit 

Reason for i 

f* on-Payment, If nnyglvon, 
>ocl on book of Paper. 

Respectfully Yogi; ,/? ,, a 

... (slzfa Cashier. 










Illustration No. 16 . Notice of Collection. 















30 


20TH CENTURY BANK ACCOUNTING 


Explanation: This is a notice 
mailed by the Merchants National 
Bank to the Overland Manufac¬ 
turing Co., advising the maturity 
of a note which this concern is to 
pay at the Merchants National 
Bank. These notices are usually 
sent a week or ten days in advance 
of the maturity of the paper and 
show the date of the paper, amount 
to be paid, and date of maturity. 
If the Overland Manufacturing Co. 
does not pay this note before two 
o’clock on December 20, it will be 
protested unless the right of pro¬ 
test has been waived by the owner 
of the paper. 

Illustration No. 17. Notice of Maturity. 



§ 54 . Protest. The endorser of a negotiable paper agrees to pay the 
paper provided he is given due notice that the maker or payer has not paid it. 
The law provides that the only legal method of notifying the endorser is for the 
holder to deliver the paper to a notary public, who presents it to the maker or 

payer and, if payment is re¬ 
fused, notifies each endorser. 
This notice sent by the notary 
public is known as a “notice of 
protest,’’ the form of which is 
shown in Illustration No. 18. 
The fee allowed the notary 
public for his services is paid 
by the owner of the paper, but 
becomes a part of the obligation 
and is collected from the maker 
or payer. If the holder does 
not wish the paper protested, 
he so instructs the bank when 
he leaves it for collection. 


Explanation: The illustration in¬ 
dicates that South-Western Publish¬ 
ing Co. are the endorsers of a check 
signed by J. Allen McCarty, payable 
at the Tennessee National Bank, and 
that payment of the check was refused 
when presented. The check was pro¬ 
tested and a notice of protest sent to 
each endorser by the notary public. 


Johnson City, Term.,. T 9 G .25, 192 


To.. Squth-Weatern Publishing Co.. 


TAKE NOTICE, that a.. 

J. Allen MoCarty 

check 


Tennessee National 

Bank, 

Johnson City 


in favor of South-Western Publishing Co. 

and endorsed by. South-’Western Publishing Co. 

Pifth-Third National Bank, Cincinnati. Ohio. 
Federal Reserve Bank, Nashville, Tenn. 
dated Feb. 16 192 

due .. ?.n presentation .payable at 

Tennessee National Bank, Johnson City, Tenn. 
for.P. a y(?®.nt. 

for ty-fiye and 83/100. . dollars 

was this day presented by me and payment demanded, which 

was refused, whereupon said....qh 9 ?)?. .was duly 

PROTESTED by me for non-payment, and you will be held liable 
for the same, with all costs, interest and damages that may be 
sustained by reason of said refusal. 

Yours respectfully, 

L. R. DRIVER, 

Notary Public. 


Illustration No. 18. Notice of Protest. 

























THE INTERNAL ORGANIZATION OF A BANK 


3i 


§ 55. Collection Teller’s Report. The note teller in charge of the 
collection department records the commercial paper accepted for collection 
by the bank during the day, and accepts cash or cash items in payment for 
collections due. At the close of the day, he proves the correctness of his work on 
a teller’s proof sheet and passes this to the bookkeeping department to be re¬ 
corded on the general proof sheet. The cash and cash items received in pay¬ 
ment of commercial papers are distributed to the proper departments. 


TRANSIT DEPARTMENT 

§ 56. This Department is in charge of a manager or teller who receives,, 
records and collects the checks payable by banks outside of the city, usually 
referred to as “transit items.” Transit items are received by all departments 
of the bank and referred to the transit department for collection. These are 
collected through the mail, either direct from the banks on which they are drawn 
or through correspondent banks. 

§ 57. Correspondent Banks. A correspondent bank is one with which 
arrangements have been made for the collection of transit items. The corre¬ 
spondent bank acts as collecting agent for checks payable on its bank, other 
banks in the same city with it, and banks within a fixed territory outside of 
the city. The Federal Reserve Bank and its branches are used extensively 
for the collection of transit items. Each member bank has an account with 
the Federal Reserve Bank or its branch in the territory, and sends to this bank 
all checks payable in the city where the reserve bank is located and in the ter¬ 
ritory adjacent to this city. 

Transit items payable by banks which are not in the territory of a cor¬ 
respondent bank are mailed direct to the bank with a request to remit by bank 
draft. Such remittances are made either by cashier’s check, New York exchange, 
or exchange on a large city near the bank which sent the transit item for col¬ 
lection. 


§ 58. The Transit Letter. The teller or manager in charge of the 
transit department records each transit item received and sent for collection. 
A letter is sent with the transit items remitted to each bank; this is known as 
a “transit letter.” This letter shows the amount and the name and address of 
the bank on which each transit item is payable, also the total amount of the 
transit items which accompany the letter. A carbon copy of each transit letter 
is retained, thus providing a record of the transit items sent for collection. Since 
the transit department should also have the name of the person from whom the 
bank receives the transit item, the transit letters are so arranged that this ad¬ 
ditional information is provided in connection with the carbon copy of the transit 
letter. Illustration No. 19 shows a popular form of the transit letter and the 
accompanying stub which provides the additional information needed by the 
bank. 


§ 59. Numerical Transit System. Much of the clerical work in the 
transit department is due to the writing of the names and addresses of banks 
on which checks are drawn. To avoid this clerical work and to enable banks 
to use machines in the preparation of transit letters, the Clearing House As¬ 
sociation of the American Bankers’ Institute inaugurated in 1911 a plan where¬ 
by each bank would be designated by number as well as name. It has required 


20 TH CENTURY BANK ACCOUNTING 


several years to get all the banks to comply with this plan, but now practically 
every bank may be designated by number as well as name. 

§ 60. Plan of Numbering. Numbers 1-49 are reserved for the larger 
cities. Numbers 50-99 are reserved for the states. The banks in each of the 
forty-nine cities are designated by a number. The banks in each of the forty- 
eight states, outside of any large cities in the state which may be numbered, 
are designated by a number. These numbers are printed on the blank checks 
supplied to a customer at the time he opens an account with the bank or when 
additional checks are needed. Reference to Illustration No. 20 will show the 
numbers assigned to the cities and states. 

Each blank check provided by the “Bank of New York,” New York City, 
New York, will have printed somewhere on it, usually following the name of 
the bank, “1-1”. This means that it is the first bank on the list of New York 
City banks, New York City being No. 1 on the numerical list of cities. Each 
blank check provided by the Fifth-Third National Bank, Cincinnati, Ohio, 
will have printed on it “13-31.” This means that it is No. 31 on the list of 
Cincinnati banks, Cincinnati being No. 13 on the numerical list of cities. Each 

(Continued on page jj) 


Remittance Statement 

Date Credited ^ - 

J7 - 

Merchants National Bank 

Centerville _ 19 

^ 

Gentlemen: 

We enclose for collection and items as follows: 

Yours respectfully, 

0. GARBER. Cashier. 

Do not promt item* $10.00 or under, or those stamped I NP 59-360 | on the items 
themselves or similar authority of a preceding endorser. Protect all items over $10.00 unless 
otherwise instructed. Wire non-payment of items $500.00, or over, and listed “T. N. P " 

DATE 

MAKER 

LAST ENDORSER 

No 

On Whom drawn 

Amount 



(%- 

2- 


X-/J7 

47 7 

30 



70 - liGY 

2- 


_ 

3$. 





2- 

//A3& 

7 <7- 2-jsry- 

47X3 



tA 


/ 

J/-2S 

7 7 

3X47 



7 


AT*?- 


70 - 


3S 







ZJ.?3 



































Illustration No. 19. Transit Letter and Remittance Register. 

Explanation: The illustration shows a popular form of the transit letter and remittance regis¬ 
ter. The space at the left is the stub of the carbon copy of the transit letter. The space at the 
right is the transit letter, beneath which is a carbon copy which the bank retains; the transit letter 
is torn off at the dotted line on the extreme right and sent with the transit item. This letter 
shows five transit items. The first, third, fourth and fifth are checks; the second is a bank draft. 
The transit letter shows the number on each transit item, the bank on which it is payable (§ 60) 
and the amount. The letter states that the items are sent for credit and gives specific instructions 
in regard to protest. The stub and carbon copy of the transit letter provide the information for 
the remittance register (§ 84). 



































THE INTERNAL ORGANIZATION OF A BANK 


33 


blank check issued by the First National Bank, Davenport, Iowa, will have 
printed on it “72-1.” This means that it is No. 1 on the list of Iowa banks, 
Jpwa being No. 72 on the numerical list of states. A list of all the banks in the 
United States, together with their numbers, is published for sale to banks. 
Reference to this directory by a clerk in the transit department will enable 
him to determine the name and address of any bank listed by number in the 
transit letter. 


1. New York City 13. 

2. Chicago, Ill. 14. 

3. Philadelphia, Pa. 15. 

4. St. Louis, Mo. 16. 

5. Boston, Mass. 17. 

6. Cleveland, Ohio 18. 

7. Baltimore, Md. 19. 

8. Pittsburgh, Pa. 20. 

9. Detroit, Mich. 21. 

10. Buffalo, N. Y. 22. 

11. San Francisco, Cal. 23. 

12. Milwaukee, Wis. 24. 


Cincinnati, O. 

New Orleans, La. 
Washington D. C. 
Los Angeles, Cal. 
Minneapolis, Minn. 
Kansas City, Mo. 
Seattle, Wash. 
Indianapolis, Ind. 
Louisville, Ky. 

St. Paul, Minn. 
Denver, Colo. 
Portland, Ore. 


25. Columbus, O. 37. 

26. Memphis, Tenn. 38. 

27. Omaha. Neb. 39. 

28. Spokane, Wash. 40. 

29. Albany, N. Y. 41. 

30. San Antonio, Tex. 42. 

31. Salt Lake City, Utah 43. 

32. Dallas, Tex. 44. 

33. Des Moines, la. 45. 

34. Tacoma, Wash. 46. 

35. Houston, Tex. 47. 

36. St. Joseph, Mo. 48. 

49. 


Ft. Worth, Tex. 
Savannah, Ga. 
Oklahoma City, Okla. 
Wichita, Kas. 

Sioux City, la. 
Pueblo, Colo. 

Lincoln, Nebr. 
Topeka, Kas. 
Dubuque, la. 
Galveston, Tex. 
Cedar Rapids, la. 
Waco, Tex. 
Muskogee, Okla. 


50. New York 

51. Connecticut 

52. Maine 

53. Massachusetts 

54. New Hampshire 

55. New Jersey 

56. Ohio 

57. Rhode Island 

58. Vermont 

59- 

60. Pennsylvania 

61. Alabama 

62. Delaware 


63. Florida 

64. Georgia 

65. Maryland 

66. North Carolina 

67. South Carolina 

68. Virginia 

69. West Virginia 

70. Illinois 

71. Indiana 

72. Iowa 

73. Kentucky 

74. Michigan 

75. Minnesota 


76. Nebraska 

77. North Dakota 

78. South Dakota 

79. Wisconsin 

80. Missouri 

81. Arkansas 

82. Colorado 

83. Kansas 

84. Louisiana 

85. Mississippi 

86. Oklahoma 

87. Tennessee 


88. Texas 
8 9- 

90. California 

91. Arizona 

92. Idaho 

93. Montana 

94. Nevada 

95. New Mexico 

96. Oregon 

97. Utah 

98. Washington 

99. Wyoming 


Illustration No. 20. Numbers of the Cities and States in the United States. 

Explanation: The first forty-nine numbers are reserved for the forty-nine largest cities 
arranged according to their population based on the 1910 census. Checks payable by a bank 
in each city have printed on them the number appearing at the left of the city in the above list. 
In addition to this, they have the serial number of the banks in the city. Numbers 50-99 are 
the states grouped geographically. Two blank numbers are provided for new states that may 
be admitted to the Union. Each check, payable by a bank located in New York State in a city 
or town other than a reserve city, will have No. 50 printed on it. In addition to this, it will 
have the serial number of the bank. 


§ 61. Transit Teller’s Report. At the close of each business day, clerks 
in the transit department assort all transit items by placing in separate packages 
those which are to be mailed to the different banks. This work requires the 
services of one who is familiar with the territory of each correspondent bank. 
After the checks have been assorted, a transit letter is prepared for the checks 
which are to be sent to each bank. When all transit letters have been prepared, 
the work in this department is proved before any transit letters are mailed. 
The teller in charge of this department makes a report of the transactions com¬ 
pleted during the day and submits it to the general bookkeeper for record on 
the general proof sheet. 

§ 62. Numbering Depositors. Many banks assign a number to each 
depositor. This is very convenient for the transit department as the number 

(Continued on page 55) 


34 


20TH CENTURY BANK ACCOUNTING 



Illustration No. 21. Transit Machine. 


First and Old Detroit National Bank 


To 


DETROIT, MICH. 
Federal Reserve Bank, 

Cleveland; Ohio. 


We enclose the following CASH items: 

Instructions: 

Telegraph non-payment of items $500.00 or over and i tems listed “T. N . P." 
Do not protest items $20.00 or less or those stamped 
similar authority of a preceding endorser. 


N. P. 9-1 



ENDORSER 

PAYER 



AMOUNT 

INSTRUCTIONS 

p s 


4 0 

5 6 

6 

9 4 

2 1 

5 6 

4 

5 4 

5 6 

6 

9 4 ’ 

1 0 

5 0 

3 2 

4 

3 3 

6 0 

2 

2 1 

6 0 0 

0 0 t.n.p. 

4 3 


2 5 




1 1 

5 4 

4 3 

3 

3 2 

6 0 

4 

3 3 

6 

0 0 

0 


1 2 

6 0 

3 

2 2 

2 3 6 

5 6 

s 


1 2 

6 0 

3 

2 2 

3 4 6 

4 5 BLATt 

4 5 

5 

5 6 

5 6 

1 

4 5 

1 2 

5 0 

4 5 

5 

4 3 

5 6 


6 7 

7 6 

5 0 sort 

1 8 

3 

2 5 

5 6 

2 

4 3 

3 5 

0 0 







12 5 3 

6 1 


0 * 


Explanation — Illustration 
No. 21. The transit letter may 
be prepared on this machine and 
all the information desired indi¬ 
cated by number. This machine 
is the result of the numerical sys¬ 
tem explained in § 59. 


Explanation — Illustration 
No. 22. The figures in the first 
column indicate the name of the 
bank from which each transit 
item was received. The figures 
in the second column indicate 
the name of the bank on which 
the checks are drawn. Colors 
are used so as to distinguish the 
state number of the bank from 
the city number (two figures at 
the right). 


Illustration No. 22. A Transit Letter Prepared With a Transit Machine. 











THE INTERNAL ORGANIZATION OF A BANK 35 

{Continued from page 33 ) 

can be used in place of the name of the depositor. Other banks with which the 
bank does business are not interested in the name or numbers of its depositors, 
but the records of the transit department should show the name of the depositor 
from whom the cash item, which is sent out for collection, was received. The 
use of a number to represent a depositor greatly facilitates the use of a machine 
for listing transit items. 



Illustration No. 23. 

Transit Department and Machine for Writing Transit Letters. 

Explanation: In the files shown at the right in the picture, space is provided for transit 
items which are to be sent to correspondent banks. As the checks come to the transit department 
they are filed in the compartment for each bank. The transit letters are made up from these 
files. 

§ 63. No Protest. Cash items sent for collection and credit and for 
collection and remittance are subject to protest because of the endorsement. 
It is customary for the bank to give instructions in the transit letter in regard 
to protest. Unless such instructions are given, the receiving bank will protest 
checks which are not paid upon presentation. The usual transit letter has 
printed on it a statement to the effect that items amounting to ten dollars or 
less are not to be protested. If a depositor is willing to waive protest on checks 
which amount to more than ten dollars, he can indicate this by stamping on 
the check “No protest,” or by attaching to it a slip with these words written 
or printed on it. 





36 


20TH CENTURY BANK ACCOUNTING 


SAFETY DEPOSIT DEPARTMENT 

§ 64. This Department is equipped with fire and burglar-proof vaults 
arranged for the convenience of those who wish to deposit valuables therein. 
The interior of these vaults is divided into compartments, and each compartment 

(Continued on page 37 ) 




Explanation: The 
outside door is con¬ 
trolled by a time-lock, 
the combination of 
which is known by one 
of the executive officers 
of the bank. The wall 
at the left of the three 
men is made up of steel 
compartments, each of 
which contains a steel 
box which is protected 
by a small steel door 
with a double lock. 


Illustration No. 24. The Exterior and Interior of a Safety Deposit Vault. 

























THE INTERNAL ORGANIZATION OF A BANK 


37 


equipped with a steel box. A charge based on the size of the box is made for 
its use. One desiring to rent a box or space in a safety deposit vault makes 
arrangements with the manager of the department for the desired space, pays 
the fee for the space, and is provided with a key to the lock on the box assigned. 
The manager retains a master key with which he must unlock a master-lock on 
the box before the customer can open it with his key. Every precaution is taken 
to safeguard the interest of those who have rented boxes in the vault, and each 
new customer must satisfy the manager that his intentions are the best and 

that he is worthy of confi¬ 
dence before he is assigned 
space. Illustration No. 24 
shows the exterior and in¬ 
terior of a safety deposit 
vault, and Illustration No. 
25, a form of identification 
card required by the bank. 

Explanation: The illustra¬ 
tion shows that two people have 
access to this box. A complete 
description, as well as the signa¬ 
ture of each, is given in the card. 
This card is kept on file by the 
manager of the department and is 
used in connection with identifi¬ 
cation when required. 

Illustration No. 25. Identification Card for Safety Deposit Department. 


Signature 




Address & 2 - - 3 ~- 


J2 2-/*A 


/ 2 -/<?-/? 




Maiden Name Birthplace Age ___ 

Height vfV 0?z. CoMPLExioN < p^^^^H»ifg7^ v ^YEV^^ x WEir,HTF i c. u R 


SIGNATURE 

Residence 





Business 


4 ^ 


Maiden nam 2 Birthplj >ce AGE 

Height S —7 Complexio digsLd hair ^2pt^> .Ey t’ /Sdum'i N eight /4^ 2 - Figure dbz* 


MERCHANTS NATIONAL BANK, Safe Depo.it Dept. 


BOND DEPARTMENT 

§ 65. This Department is in charge of a manager or teller who has 
supervision over all transactions relating to the purchase and sale of stocks 
and bonds. It is not generally considered good policy for a commercial bank 
to invest heavily in bonds because they are not self-liquidating on a short-time 
basis. However, there are some good reasons why banks should invest in bonds, 
hence the department is maintained to take care of the transactions. Some of 
these reasons are fa) to obtain income from the bonds as investments, (b) to 
obtain certain privileges, and (c) to assist the Government in its finances. The 
income results from the interest collected by the owner of the bonds, The 
privileges may be, in the case of national banks, the use of bonds as collateral 
security for issuing national bank currency; in the case of all banks, the de¬ 
positing of bonds as collateral security for Government, state or municipal funds 
deposited. During the World War, banks throughout the United States acted 
as selling agents for the war loans of the Government, in this way rendering a 
great service to the Government in a time of public danger. 

The transactions in the bond department relate largely to the purchase 
and sale of Government, state, county, municipal, and commercial bonds. 
These bonds are purchased on the stock market through bond houses, or direct 
through the corporation issuing them; they are sold to the customer upon his 
order. The bond department must be in constant touch with the stock market 
in order to know the selling price of the various bonds which it carries in stock. 

























38 


20TH CENTURY BANK ACCOUNTING 


This is effected by the installation of a stock ticker which reports by telegraph 
all transactions completed on the stock market at the time they are completed. 
The profit in this department results from an increase in the market value of 
the bonds and a commission charged for the completion of each transaction; 
the loss results from a decrease in the market value of the bonds. 

As a general rule, banks do not deal extensively in stocks because it is not 
considered the best policy for a commercial bank to invest in this class of secur¬ 
ities. However, there are certain stock transactions which may be completed 
by the bond department. In the case of national banks, these include the pur¬ 
chase of stock in the Federal reserve bank under which the bank is operating, 
and the purchase of stock in other banks. The Federal Reserve Act allows 
each member bank to invest an amount not exceeding ten per cent of the paid- 
in capital and surplus in the stock of other banks chartered under national or 
state law, and engaged principally in foreign banking. State banks are not limited 
in their stock operations except by the good judgment of the management, 
unless there is a special state statute governing the investment in this class of 
securities. 

A careful record of each bond or series of bonds bought or sold by the bank 
is made in the Bonds Bought register and Bonds Sold register. Each of these 
registers is provided with columns so that the record of a bond transaction 
can be made on one line. Stocks and bonds owned by the bank are kept in the 
vault under the supervision of the bond teller. Interest coupons are usually 
detached a few days before they are due and given to the collection depart¬ 
ment for collection. In addition to making a careful record of all stocks and 
bonds bought or sold, the manager or teller in charge of the bond department 
prepares a daily proof sheet in the same manner as the tellers in the other depart¬ 
ments. Cash items received for the sale of stocks and bonds are distributed to 
the proper departments for collection. 


BOOKKEEPING DEPARTMENT 

§ 66. This Department is in charge of one or more bookkeepers whose 
duty it is to keep the accounts of the bank. If the volume of business is small, 
one bookkeeper would keep the accounts with depositors, correspondent banks, 
operating costs and income. If the volume of business is large, one or more 
bookkeepers are required to keep the accounts with depositors and one or more 
to keep the general accounts. Those who keep the accounts with depositors are 
referred to as depositors bookkeepers, and those who keep the general accounts, 
as general bookkeepers. 

§ 67. Accounts with Depositors. The duty of the depositors book¬ 
keeper is to keep the account with each individual, firm or corporation which 
has money on deposit with the bank. This record is kept in a special ledger, 
usually referred to as the depositors ledger. The debits and credits to each 
depositor’s account are posted from his deposit tickets and checks. The entries 
in this ledger are made at the close of each business day so that the officials 
may know the balance due each depositor at the beginning of the next business 
day. The balance due each depositor is ascertained by adding the deposits 
for the day to the balance at the beginning of the day and subtracting from 
this total the checks paid by the bank during the day. If no deposit was made, 
the new balance is the difference between the old balance and the checks; if 
no checks were written, the new balance is the old balance plus the total of the 
deposits for the day; if no deposits were made nor checks written, the new bal- 


THE INTERNAL ORGANIZATION OF A BANK 


39 


ance is the same as the old. I he bookkeeper in charge of the depositors ledger 
proves his work at the close of the day by adding the total deposits for the day 
to the total balance due depositors at the beginning of the day, and deducting 
from this the total checks paid during the day; the result of this subtraction 
should be the same as the total of all balances at the close of the day. 

§ 68. Overdraft. If the total of the checks written by a depositor is 
greater than the total amount deposited by him, his account shows an 
“overdraft.” The depositors bookkeeper indicates an overdraft by writing 
the amount of the overdraft in red ink. The total of the overdrafts is de¬ 
ducted from the total balances when making a proof of the depositors’ accounts 
at the close of the day. 

Overdrafts are discouraged by all banks, because there is no security for 
the temporary loan. If a depositor wishes to withdraw from the bank a sum 
in excess of that which he has deposited, he should arrange with the cashier for 
a loan, so that the bank will have the proper security. Member banks of the 
Federal Reserve Bank system are instructed by the Comptroller of Currency 
to discourage overdrafts, as shown by Illustration No. 26. 


Merchants National Bank 



We are holding your check for $ ^ A".., which if charged to your 

account would cause an overdraft of $ -- — The recent 

regulation governing overdrafts, a copy of which is herewith reproduced, will 
explain our position and the necessity of this notice. If you will kindly call 
as soon as possible and arrange so that the check may be regularly charged 
it will be greatly appreciated. 

We hope to receive your hearty co-operation in dealing with the ovenlraft 
problem and assure you that the assistance of our customers will prove very 
helpful. 

Thanking you in advance, I am, 

Tours respectfully, 

O. GARBER. Cashier. 


(Copy) 

TREASURY DEPARTMENT 

Comptroller of the Currency 

Washington. 0. C. 

To the Board of Directors: 


Gentlemen: 

The granting by some banks of 
accomodation in the form of over¬ 
drafts is objectionable and can not 
be countenanced by this office. This 
practice should cease entirely. To 
faciliate the accomplishment of this 
result, the subject has been taken up 
by this office with the banking de¬ 
partments of various states and the 
authorities have generally agreed to 
take necessary action to secure the 
effective co-operation of State Banks 
in attaining the end desired. 

You are requested to adopt a reso¬ 
lution directing that no officer or em¬ 
ployee of your bank shall pay or 
charge to the account of any deposi¬ 
tor any check of such depositor where 
there are not sufficient funds on de¬ 
posit to the credit of the drawer of 
the check to meet the same. 

Please forward a certified copy of 
the resolution to this office as soon 
as it has been adopted. Let the res¬ 
olution show the name of the direc¬ 
tors present at the meeting. Please 
acknowledge receipt without delay. 

Respectfully, 

JNO SKELTON WILLIAMS, 

Comptroller. 


Illustration No. 26. Notice of Overdraft. 


§ 69. General Accounts. The general bookkeeper records all the trans¬ 
actions for the day in the general cash book and posts from this to the general 
ledger. The accounts in the general ledger include the assets, liabilities, income, 
operating cost, and special profit and loss accounts. Illustration No. 46 shows 
a popular form of ruling for the general ledger. The Comptroller of Currency 
can require a Statement of Resources and Liabilities at the close of any business 
dav, and for this reason national banks usually require that the accounts on the 
Trial Balance be arranged to conform to the standard form of statement required 
by the Comptroller of Currency. 















4 o 


20TH CENTURY BANK ACCOUNTING 


§ 70. The Messenger or “Runner” is the clerk whose duty it is to 
present local papers for collection. The commercial papers presented by the 
messenger consists of notes, sight drafts, time drafts, trade acceptances, checks 
deposited and returned to the bank unpaid and charged back to the depositors, 
and other business papers. Cash or checks given in payment for these papers 
are delivered by him to the proper department in the bank. 


THE CLEARING HOUSE 

§ 71. The Clearing House is an association of banks located in the same 
city. The purpose of this association is to facilitate the collection of checks, 
formulate rules and regulations governing collection charges and other oper¬ 
ations of the member banks, and to provide for their mutual protection during 
periods of business depression. Checks payable by local banks may be col¬ 
lected by messengers from the various banks who meet and exchange checks. 
If each bank in the city makes the same charge for discounting and collecting 
notes, drafts, trade acceptances, and other commercial paper, and pays the 
same rate of interest for time deposits, all depositors will be better satisfied, 
hence more efficient service can be rendered by each bank. 

During a period of financial depression, one bank may become involved 
to such an extent that its depositors, fearing legal complications, may decide to 
withdraw their funds. No bank keeps sufficient cash on hand to pay all of its 
depositors at one time, hence the bank involved might have to go into bank¬ 
ruptcy. 

A desire on the part of all the depositors to withdraw their funds at 
one time is often referred to as a “run” on the bank. When such a condition 
arises, the members of the Clearing House Association can protect the bank on 
which the run is being made by providing sufficient funds to pay the depositors 
who wish to withdraw their cash, and thus reestablish confidence in the bank. 
It is to the interest of all banks in the Clearing House Association to protect 
a member bank because a run on one bank might result in runs on other banks, 
which would be disastrous to all the banks in the association. 

§ 72. Method of Clearing. Checks payable on other banks in the city 
are collected on the day following the one on which they are received. At the 
close of the day, the clerks in each bank assemble the checks payable on other 
banks in the city and place those payable on each bank in a separate package. 
The name of the receiving bank, date and total are written on a slip of paper, 
which is attached to the package of checks for each bank. The total due from 
each bank, as shown by the total on the slip of paper attached to each package 
of checks, is entered in the “Amount Sent” column on the clearing house state¬ 
ment (Illustration No. 27), the amount payable by each bank being placed on 
a line with the name of the bank. The total of the “Amount Sent” column is 
the amount to be collected from all the other banks in the city. No account 
is kept with the clearing house, hence this total is treated as a cash item when 
making the cash proof for the day. The clearing house checks and statement 
are placed in the vault for the night as collection is not to be made until the fol¬ 
lowing morning. 

Before noon of the following day, the clearing house checks are removed 
from the vault, endorsed, and sent by messenger to the office of the Clearing 
House Association. This office is equipped with a desk for the manager and 


THE CLEARING HOUSE 


4i 


one for the representative of each bank. As each messenger enters the office, 
he passes the desk of the manager and announces the total of the 1 ‘Amount 
Sent” column on his clearing house statement. He then places the checks pay¬ 
able by each bank on the desk assigned to the representative of the bank, after 
which he takes a seat at his own desk. If all the messengers follow this plan, 
each will find on his desk a package of checks from each bank, or from as many 
banks as have accepted checks payable by his bank. Each package of checks 
on a messenger’s desk will have the total and name of the bank written on a 
slip of paper attached to it. Each messenger enters in the “Amount Received” 
column the total of the checks received from the other messengers; the amount 
is entered on a line with the name of the bank. Each messenger announces to 
the manager the total of the “Amount Received” column on his clearing house 
statement; these totals, when added by the manager, will be the same as the 
total of the checks brought to the clearing house by the various messengers. 
Each messenger ascertains the amount due to or owed by his bank by sub¬ 
tracting the total of the “Amount Received” column from the total of the 
“Amount Sent” column, or the reverse. Each messenger returns to his bank 
with the clearing house statement and checks received. Sometime during the 
day, usually before one o’clock, settlement is made, either by check or cash. 
Those banks which owe the Clearing House Association pay the amount owed; 
the various amounts paid by these banks will be sufficient for the manager of 
the clearing house to pay those banks whom the clearing house owed through 
the daily settlement. In those cities where a Federal Reserve Bank or branch 
reserve bank is located, settlement is usually made by check on this bank. 


Explanation: The date is 
the one preceding the day on 
which settlement is made. The 
amounts in the “Amount Sent” 
column are the totals of the checks 
held by the bank making the state¬ 
ment. The checks in the “Amount 
Received” column are those re¬ 
ceived at the meeting of the mes¬ 
sengers. The Merchants National 
Bank owes the other banks 
$500.00 because the total of the 
“Amount Sent” column is this 
amount less than the total of the 
“Amount Received” column. This 
$500.00 will be paid to the mana¬ 
ger and he will use it to pay the 
other banks which have a credit 
balance. 

Illustration No. 27. Clearing House Statement. 


CLEARING HOUSE STATEMENT 

DATE ‘pSj&C'f/.S. 19 

AMOUNT SENT 

BANK NO. 

MEMBER 

AMOUNT RECEIVED 

3-2-y 

O 

59-359 

First National Bank 

6S7 

30 



59-360 

Merchants Nat. Bank 



/ 0 / 


59-361 

Security National Bank 

/3~0 


33 


59-362 

Citizens National Bank 

/SZ 

30 













^ 6 / 

60 


TOTALS 

7 6 / 

S 0 

So 0 


Or Balance Cr. Balance 




The clearing housfc statements published in the daily newspapers show the 
total of the local checks paid by the banks in the city for the time specified. 
This total is, to a certain extent, an index to the volume of cash business done 
in the city, because checks are used extensively in the settlement of cash trans¬ 
actions. 

The term “clearing” refers to the collection of checks in a given territory 
and is not used exclusively in connection with the collection of local checks. 
New York City is regarded as a clearing point for the collection of checks pay¬ 
able by banks in the city of New York and adjacent territory; Chicago, a clear- 

























42 


20TH CENTURY BANK ACCOUNTING 


ing point for banks in Chicago and adjacent territory; Dallas, Texas, a clearing 
point for checks payable in Dallas and the Southwest; Atlanta, Georgia, a 
clearing point for checks payable in banks in Atlanta and the Southeast; San 
Francisco, a clearing point for banks in San Francisco and California. Each 
large city is in effect a clearing point for the territory which it serves. 


BOOKS OF ACCOUNT 


43 


BOOKS OF ACCOUNT 

§ 73. The Books of Account required in connection with recording 
the transactions performed by a bank consist of (a) the various tellers’ proof 
sheets,, (b) the general.proof sheet, (c) the registers required for recording loans 
and discounts, collections, exchange, certified checks, certificates of deposit, 
and cashier’s checks, (d) the loans and discounts tickler, (e) the collection tickler 
(f) the journal, (g) the depositors ledger, and (h) the general ledger. The tellers’ 
daily proof sheets, the ticklers, remittance register and the depositors ledger 
are usually loose-leaf; the general proof sheet, registers, journal and general 
ledger are usually bound volumes. The journal is used only for opening, ad¬ 
justing and closing entries. 

§ 74. Teller’s Daily Proof Sheet. The object of this sheet is to provide 
a record of the transactions performed by each teller during the day. It is ar¬ 
ranged to provide for (a) the cash on the teller’s counter at the beginning of the 
day, (b) the transactions completed by the teller during the day, (c) the dis¬ 
tribution of cash items to other tellers or departments for collection, (d) the 
cash on the teller’s counter at the close of the day, and (e) the teller’s proof of 
his work for the day. The teller records the transactions as they occur in the 
columns at the top of the teller’s proof sheet. Where a large volume of business 
is performed, the record in these columns may be made by an assistant and 
contain totals only which are transferred from adding machine lists. At the 
close of the day the columns are footed and the totals carried to the lines at the 
bottom of the proof sheet. The difference between the total cash (money and 
cash items) received by a teller and the total cash (money and cash items) given 
other tellers is the money (currency and coins) remaining on the teller’s counter 
at the close of the day. With the exception of the transit teller, all cash items 
received by a teller are passed to the bookkeeping department or the transit 
teller. Cash items received by the transit teller from the tellers and other banks 
are .sent to correspondent banks for collection. Illustrations Nos. 28-33 shows 
the form of teller’s proof sheet used in the practice set which accompanies this 
text. The form used by each teller is the same, because many of the tellers 
perform transactions of the same nature. The application of each sheet, as 
defined in the foregoing, to the work of each teller is given in the explanation 
in connection with the illustration. 

§ 75. The General Proof Sheet. The object of this sheet is to provide 
a record of the transactions completed by all the tellers during the day. It 
should be arranged to provide for (a) the cash on hand at the beginning of the 
day; (b) the cash receipts, with the names of the accounts credited, (c) the 
cash payments, with the names of the accounts debited, (d) the cash on 
hand at the close of the day, (e) the cash balance, that is, the actual cash in the 
vault at the close of the day, (f) the cash on the counter of each teller at the 
close of the day, and (g) the cash “make-up” at the close of the day. Illustration 
No. 34 shows the form of general proof sheet used in the practice set which 
accompanies this text. The information in the illustration is obtained from 
the various tellers’ proof sheets, Illustrations Nos. 28-33. The application of 
this sheet to the foregoing definition is given in the explanation in connection 
with the illustration. 


44 


20TH CENTURY BANK ACCOUNTING 


Teller’s Daily Proof Sheet at Close of Business 




/<?, 192 _ 


Cash I>r. 


Cash Cr. 


Deposits 

1 


/o 0 


<3 / 3 

/o 

2 /3~ 


7 0 

„j ro 

7^7 

So 

3 3/ 

SO 

370 ? 3 

73 

3 / os 

33 


Loans and Dis. 
5 


Transit Items 
2 


Chem. Nat’l Bank 
3 


Cert, of Deposit 


Cashier’s Checks 
7 


Corn Exc. Bank 
4 


Transit Items 

45 

/7*S 


t/2 

Sc 

3 7/ 
*2 S3 
/ So 


/ 0 


77 7 

SO 

*3 3 
3 3 V 

2S 

' / zfy 

~26' 


Coll, and Exchange 
8 


Chem. Nat’l Bank 
46 


Corn Exc. Bank 
47 


Loans and Dls. 
49 


Cert, of Deposit 
50 


Cashier’s Checks 
51 


M. N. Bank Cks. 

48 

(> 7 

cTC 

3 3 


3 / 0 

/O 

/ O 2 

SO 

/ & 

So 

' '7 3 7 

0 0 

Int. and Dls. 

52 



Int. and Dis. 
9 


Clearing House 
10 


Sundry Accounts 


Clearing House 
53 


Fed. Reserve Bk. 
54 


Sundry Accounts 
55 


Name of Account 


/ 0 / 


33 


So 


3 7 

Sc 

/ ' 0 


3 3/ 

So 


Name of Account 


Credit Totals 


Cash Totals 


Debit Totals 


Balance (morning).13 

Deposits.14 

Transit Items.15 

Chem. Nat'l Bank.16 

Corn Exc. JVat’l Bank. .. 17 
Loang and Discounts .... 18 

Cert, of Deposit.19 

Cashier's Checks.20 

Coll, and Exchange.21 

Int. and Discount.22 

Clearing House.23 

. 24 

.25 

.26 

.. 27 

Total Credits.28 

Total Debits.29 

Balance (evening).30 


/000 
3 r«S 


u /os 

2 0 3S 


2.0 yc 


3S 


3S 

3S 


In Vault.31 

Gold.32 

Silver.33 

Currency.34 

Nickels and Cents.35 

Total in Vault.36 

Counter.37 

Gold.38 

Silver.39 

Currency.40 

Nickels and Cents.41 

Cash Items.42 

• .. 43 

Total Cash...:.44 

PROOF 

The difference between the "Total 
Credits” and “Total Debits” 
(line 30 ), should be the same as 
the “Total Cash” (line 44 ). 


20 yc 


2070 


Transit Items.57 

Chem. Nat’l Bank.58 

Corn Exc. Nat’l Bank...59 

Deposits.60 

Loans and Discounts. . . .61 

Cert, of Deposit.62 

Cashier’s Checks.63 

Int. and Disc. 64 

Clear. House....65 

Fed. Res. Bk.66 

. 67 

.68 

..69 

. 70 

. 7 i 

Total Debits..72 


/ 3 ?*/ 
//2<f 

3 2 ' 


2o3S 




(, O 


SO 


3S 


Illustration No. 28. Receiving Teller’s Daily Proof Sheet. 

Explanation: The balance at the beginning of the day is entered on line 13, and the depos¬ 
its accepted by the receiving teller during the day in column 1. The distribution of the cash 
items to the other tellers for collection is shown by the entries in columns 45, 48 and 53. The 
entry on line 40 is the currency on the teller’s counter at the close of the day. The teller’s proof 
is made from the entries in the “Credit Totals’’ and the “Debit Totals” columns. The entry on 
line 14 is the total of column i, on line 57 the total of column 45, on line 60 the total of column 48, 
and on line 65 the total of column 53. The currency on his counter is shown on lines 30 and 44! 
















































































































BOOKS OF ACCOUNT 


45 


Teller’s Daily Proof Sheet at Close of Business ^ 


5 ^' /<^/ 192— 


Cash Dr. 


Cash Cr. 


Deposits 

1 


Transit Items 
2 


Cbem. Nat’l Bank 
3 


3 ^jT 



Transit Items 
45 


27 s 

3 6>jt 


6 /j/ O 


30 
3 S^ 
6 5 


Chem. Nat’l Bank 
46 


Corn Exc. Bank 
47 


M. N. Bank Cks. 
48 


2 SC 

So O 

So 


tfc C 


Loans and Dls. 
5 


Cert, of Deposit 
6 


Cashier’s Checks 
7 


Loans and Dls. 


Cert, of Deposit 
50 


Cashier’s Checks 
51 


Int. and Dls. 
52 


^ SC 

S~o o 


Int. and Dls. 
9 


Clearing House 
10 


Clearing House 


Fed. Reserve Bk. 


Sundry Accounts 
55 


Name of Account 


/ v c 6 ° 


Name of Account 


Credit Totals 

Balance (morning).13 

Deposits.14 

Transit Items.15 

Chem. Nat’l Bank.16 

Corn Exc. Nat’l Bank... 17 
Loans and Discounts .... 18 

Cert, of Deposit.19 

Cashier’s Checks.20 

Coll, and Exchange.21 

Int. and Discount.22 

Clearing House.23 

.24 

.. 25 

.26 

..27 

Total Credits.28 

Total Debits.29 

Balance (evening).30 


Cash Totals 


Transit Items... 



6 s- 

Chem. Nat’l Bank. 

•58 



Corn Exc. Nat’l Bank.. 

• 59 



Deposits. 


tfcc 


Loans and Discounts.. . 

.61 



Cert, of Deposit. 




Cashier's Checks. 

■63 



Int. and Disc. 

64 



Clear. House. 

•65 

/*/c 

/o 

Fed. Res. Bk. 

.66 




.67 



.68 



.69 



.70 






Total Debits. 

.72 

/jTT 0 

7 * 


/ccc 

27S 

7 S 0 

/7c 


2 SSO 

/ssc 


/cc 6 


/c 

6sir 


In Vault. 3 1 

Gold.32 

Silver. 33 

Currency. 34 

Nickels and Cents.35 

Total in Vault.36 

Counter. 37 

Gold...38 

Silver. 39 

Currency.. 4 ° 

Nickels and Cents.41 

Cash Items.4 2 

. 43 




Total Cash. 44 

PROOF 

The difference between the “Total 
Credits” and “Total Debits” 
(line 30 ) should be the same as 
the "Total Cash” (line 44 ). 


/CCO 


/OOO 


Illustration No. 29. Exchange Teller’s Daily Proof Sheet. 

Explanation: The cash balance at the beginning of the day is entered on line 13. The 
entries in columns 3, 4, 6, 7 and 8 are the transactions completed by the teller during the day. 
The entries in columns 45, 48 and 53 show the distribution of the cash items to the other depart¬ 
ments for collection. The entry on line 40 is the currency on the teller’s counter at the close of 
the day. The proof is made from the entries in the “Credit Totals” column and the “Debit 
Totals” column. The difference between the total cash items received (line 28) and the total 
cash items distributed (line 72) equals the cash on the teller’s counter (line 40). 




















































































































20TH CENTURY BANK ACCOUNTING 


46 


Teller’s Daily Proof Sheet at Close of Business_ —192 


Cash Dr. 


Cash Cr. 


Deposits 

SO/ 6 


<770 


t,o 0 

// 

s 0 0 O 


^7 TGr 

^7 


Transit Items 
2 


Chera. Nat’l Bank 

3 


Corn Exc. Bank 


Transit Items 

45 


Chem. Nat’l Bank 

46 


Corn Exc. Bank 

47 


M. N. Bank Cks. 


JSSJ 

7^7 


+/ 3 /C 


jro 

S'o 


Loans and Dls. 

5 


Cert, of Deposit 
6 


Cashier’s Checks 
7 


Coll, and Exchange 
8 


Loans and Dls. 

49 


Cert, of Deposit 

50 


Cashier’s Checks 

51 


Int. and Dis. 
52 



'JSoo 

7 So 





Int. and Dls. 
9 


Clearing House 
10 


Sundry Accounts 


Clearing House 
53 


Fed. Reserve Bk. 

54 


Sundry Accounts 

55 


r 3 

Jo 

/ 0 


7 


S 3 


7 


/ c,x 

/3 


Name of Account 


Name of Account 


Credit Totals 


3 COO 

7606 

r 7 

O-JSc 


/ 6 -2 

/.3 

/ 7 0/7 
/ 6017 


/OOO 

- 


Cash Totals 


Debit Totals 

Transit Items.57 

Chem. Nat’l Bank.58 

Corn Exc. Nat’l Bank. . .59 

Deposits.60 

Loans and Discounts. .. .61 

Cert, of Deposit.62 

Cashier’s Checks.63 

Int. and Disc... . 64 

Clear. House.65 

Fed. Res. Bk.66 

.67 

. 68 

.69 

. 70 

. 71 

Total Debits.72 


Balance (morning).13 

Deposits.14 

Transit Items-..15 

Chem. Nat’l Bank.16 

Com Exc. Nat’l Bank. . . 17 
Loans and Discounts .... 18 

Cert, of Deposit.19 

Cashier’s Checks.20 

Coll, and Exchange.21 

Int. and Discount.22 

Clearing House.23 

. 24 

.25 

.26 

.27 

Total Credits.28 

Total Debits.29 

Balance (evening).30 


In Vault.31 

Gold.32 

Silver.33 

Currency.34 

Nickels and Cents.35 

Total in Vault.36 

Counter.37 

Gold.38 

Silver.39 

Currency.40 

Nickels and Cents.41 

Cash Items.42 

.43 


Total Cash.44 

PROOF 

The difference between the “Total 
Credits” and "Total Debits” 
(line 30). should be the same as 
the “Total Cash” (line 44). 


/OOO 


/ co 6 


i/J /0 

// 0 00 


/oy 


/7,c/cj 


Illustration No. 30. Loans and Discounts Teller’s Daily Proof Sheet 

Explanation: The cash on the teller’s counter at the beginning of the day is entered on 
line 13. The entries in columns 1, 5, 9, 48, 49 and 52 show the transactions completed by the 
teller during the day. The work of this teller is different from that of the receiving and exchange 
tellers because he accepts loans and discounts, also cash in payment for these when they mature. 
His entries will include columns pn both sides of the center line because of the interest and dis¬ 
count on the notes. The entries in column 48 show the distribution of cash items received during 
the day. The entry on line 40 is the currency on the teller’s counter at the close of the day. 




















































































































BOOKS OF ACCOUNT 


47 


''' '—Teller’s Daily Proof Sheet at Close of Business /<?' 192 


Cash Dr. 


Cash Cr. 


Deposits 

1 



Transit Items 


Chem. Nat’l Bank 
3 


Corn Exc. Bank 
4 


Transit Items 
45 


Chem. Nat’l Bank 
46 


Corn Exc. Bank 
47 


M. N. Rank Cks. 
48 


■SC |SO 

/ uc\ 

C \JTO 


/f 


Loans and Dls. 
5 


Cert, of Deposit 
6 


Cashier’s Checks 
7 


Coll, and Exchange 
8 


Loans and Dis. 
49 


Cert, of Deposit 
50 


Cashier's Checks 
51 


Int. and Dis. 
52 




Int. and Dis. 


Clearing House 
10 


Sundry Accounts 


Clearing House 


Fed. Reserve Bk. 
54 


Sundry Accounts 
55 


Name of Account 


Name of Account 


Credit Totals 

Balance (morning).13 

Deposits.414 

Transit Items..15 

Chem. Nat’l Bank.,16 

Corn Exc. Nat’l Bank... 17 
Loans and Discounts .... 18 

Cert. of. Deposit.19 

Cashier’s Checks.20 

Coll, and Exchange.21 

Int. and Discount.22 

Clearing House.23 

.24 

.025 

.26 

.27 

Total Credits.,.. .28 

Total Debits.29 

Balance (evening). ..30 


So 0 

cs 

/ /f 


rs 


sc 

/<?c 

Sc 

Sc c 

- 


Cash Totals 

In Vault.31 

Gold.32 

Silver.33 

Currency.34 

Nickels and Cents.35 

Total in Vault.36 

Counter.37 

Gold.38 

Silver.39 

Currency...40 

Nickels and Cents.41 

Cash Items.42 

. 43 

Total Cash.44 

PROOF 

The difference between the "Total 
Credits” and “Total Debits” 
(line 30), should be the same as 
the “Total Cash” (line 44). 


Debit Totals 


S00 


so 0 


[Transit Items. 57 

Chem. Nat’l Bank.58 

Com Exc. Nat'l Bank. ..59 

Deposits. 60 

Loans and Discounts.... 61 

Cert, of Deposit.62 

Cashier’s Checks.63 

Int. and Disc. 64 

Clear. House.65 

Fed. Res. Bk.66 

.67 

.68 

.69 

. 70 

. 7 i 


Total Debits.72 


SC 


'7 


sc 


Illustration No. 31 . Collection Teller’s Daily Proof Sheet. 

Explanation: The cash on the teller’s counter at the beginning of the day is entered on 
line 13. The entries in columns 1 and 8 show the collections made during the day, and the 
entries in column 48 show the distribution of cash items received. The entry on line 40 is the 
currency on the teller’s counter at the close of the day. The total cash items distributed (line 72) 
deducted from the total cash and cash items received (line 28) gives the cash on hand (line 40). 
The collection teller usually receives checks payable by his bank or currency in payment for 
the paper which he holds. 'Checks payable by other banks should be certified. 




















































































































48 


20TH CENTURY BANK ACCOUNTING 


— Tfiler’s Daily Proof Sheet at Close of Business 



192 _ 


Cash Dr. 


Cash Cr. 



Loans and Dis. 
5 


Cert, of Deposit 
6 


Cashier’s Checks 
7 


Coll, and Exchange 
8 


M. N. Bank Cks. 

48 



Loans and Dis. 


Cert, of Deposit 
50 


Cashier's Checks 

51 


Int. and Dis. 
52 


Int. and Dis. 


Clearing House 
10 


Sundry Accounts 

11 


Clearing House 
55 


Fed. Reserve Bk. 
54 


Sundry Accounts 
55 


Name of Account 


/ 6 S 

^ 7 


3S 

3 <> 


*/r-3 


Name of Account 


ss 


Credit Totals 


Cash Totals 


Debit Totals 


Balance (morning).13 

Deposits.14 

Transit Items.15 

Chem. Nat’l Bank.16 

Corn Exc. Nat’l Bank.. . 17 
Loans and Discounts .... 18 

Cert, of Deposit.19 

Cashier’s Checks.20 

Coll, and Exchange.21 

Int. and Discount.22 

Clearing House.23 

.24 

. 25 

.26 

.27 

Total Credits.28 

Total Debits.29 

Balance (evening).30 


/?**/ 


/<?S/ 


Cjr O 


< 7 ° 


In Vault.31 

Gold.32 

Silver.33 

Currency.34 

Nickels and Cents.35 

Total in Vault.36 

Counter.37 

Gold.38 

Silver.39 

Currency.40 

Nickels and Cents.41 

Cash Items.42 

.. 43 

Total Cash.44 

PROOF 

The difference between the "Total 
Credits" and “Total Debits” 
(line ,40). should be the same as 
the "Total Cash" (line 44). 


Transit Items.57 

Chem. Nat’l Bank.58 

Corn Exc. Nat’l Bank...59 

Deposits.60 

Loans and Discounts. .. .61 

Cert, of Deposit.62 

Cashier’s Checks.63 

Int. and Disc. 64 

Clear. House.65 

Fed. Res. Bk.66 

.67 


.68 

. ••69 

. 70 

. 71 

Total Debits.72 


//?£ 


-jT<r 

r.A 


7/7 ss 




yc 


Illustration No. 32 . Transit Teller’s Daily Proof Sheet. 

Explanation : The transit teller collects cash items which come to him from correspondent 
banks or the other departments of the bank, hence he needs no cash on his counter. The two 
entries in column 2 show the cash items received during the day. The entries in columns 46, 47 
and 54 show the distribution of these cash items. The transit teller knows his work is correct 
when the total cash items sent equals the total cash items received. No letters of advice con¬ 
taining cash items are mailed by the transit teller until all tellers who received cash items during 
the day have proved the correctness of their work and the transit teller has proved his work. 





























































































































BOOKS OF ACCOUNT 


49 




o 


-Teller’s Daily Proof Sheet at Close of Business 

Cash Dr. Cash Cr. 


T 192 


Deposits 

1 


Transit Items 
2 


Chcm. Nat’l Bank 
3 


Corn Exc. Bank 


Transit Items 
45 


Chem. Nat’l Bank 


Corn Exc. Bank 


M. N. Bank Cks. 
48 



Loans and Dls. 
5 


Cert, of Deposit 
6 


Cashier’s Checks 
7 


Coll, and Exchange 
8 


Loans and Dis. 


Cert, of Deposit 
50 


Cashier’s Checks 
51 


Int. and Dis. 
52 


Inr. and Dis. 
9 


Clearing House 
10 


Sundry Accounts 

u 


<'tearing House 
53 


Amount 


Fed. Keserve Bk. 
54 


Sundry Accounts 
55 


t/G / Co 


Name of Account 


Name of Account 


Credit Totals 

Count e 

Balance (morning) Mtut'.if. 13 

Deposits.14 

Transit Items.15 

Chem. Nat’l Bank ..... 16 
Corn Exc. Nat’l Bank. 17 
Loans and Discounts .... 18 

Cert, of Deposit.19 

Cashier’s Checks.20 

Coll, and Exchange.21 

Int. and Discount.22 

Clearing House.23 

.24 

. 25 

.26 

. .. 27 

Total Credits.28 

Total Debits.29 

Balance (evening).30 


Cash Totals 


Debit Totals 




Transit Items. 

■ -57 


.5/CO 


Chem. Nat’l Bank . .. . 

■ 08 


62 S 0 

r°\ 

Corn Exc. Nat’l Bank. 

• •59 


2330 */ 


Deposits . 


6 If 

t/VO 

20 

Loans and Discounts.. 



■ZZ/ 3 S 


Cert, of Deposit. 

. . 62 




Cashier’s Checks. 

• .63 




Int. and Disc.. 

. 64 




Clear. House. 

• .65 


//3 0 


Fed. Res. Bk . 

. .66 



% 


67 



Go 


. 68 





. .69 





. .70 





■ 7 i 


3 <72 C 

<c 

Total Debits. 

• 72 



/ T/iC 

35/-3 ^ 


*/G/ 


3 /*y" 

6c 

3C72C 

Cc 


6 0 


In Vault.31 

Gold.32 

Silver.33 

Currency.34 

Nickel's and Cents.35 

Total in Vault.36 

Counter.37 

Gold. 38 

Silver.39 

Currency. ..40 

Nickels and Cents 41 

Cash Items.42 

.. 43 

Total Cash. 44 

PROOF 

The difference between the “Total 
Credits” and “Total Debits” 
(line 30) should be the same as 
the “Total Cash” (line 44). 


Illustration No. 33. Paying Teller’s Daily Proof Sheet. 

Explanation: The paying teller is responsible for all the cash in the bank, hence the cash 
on his counter and the total of that in the vault are entered on line 13 in separate amounts. The 
paving teller pays cash, hence will not receive any cash items except in exchange for cash. The 
entries in column 48 show the distribution of the cash items on which he has paid cash during 
the dav The cash in the vault at the close of the day is entered on lines 32, 33 , t 34 » 35 -nd 36; 
the currency on his counter is entered on line 40. The clearing house checks are held as c* sh items, 
hence the amount is entered in column 10 and on line 4-• 


























































































































50 


20TH CENTURY BANK ACCOUNTING 


MERCHANTS NATIONAL BANK 

GENERAL PROOF SHEET /.<■, .192 


ACCOUNT 

No. 

Receiving 

Teller 

Exchange 

Teller 

Loans & Dis. 
Teller 

Collection 

Teller 

Transit 

Teller 

Paying 

Teller 

Tota 


L.F. 

CREDITS 

Deposits.. 

14 

15 

l./c/.A 

44 


--- 




/.'■ 

3723 



... 

/3.fol 

2-723 

n 

70 

.... 


16 

17 

18 












3>/5 































*2SC 




19 

20 

21 


















• 











..J.fP. 

/o 










*3 



< 


. /. 

50 



20 





/ G 2 

/■3 







3AZ 

/J 



23 











3-CJ- 

b 0 

1 / / / 

Co 



24 

















25 

















26 

















27 

13 
















Total Credits (Cash Dr.)_ 

3/ 03 
/ 0 0 c 

35 

/coo 

C* 

./.ko/q. 

200 0 

-- 

. /?_<? 
,SO 0 

30 

3 A 23. 

?o 

2/32 

3G4SC 

u 

2/212 

/o 

.... 

Totals.... .. 

28 

0//CS 

JSC 

Z5JO 

72 

mo m 


GOO 


. /92*/ 

qo 

37 7 U 

Go 

G?.7.h2 

(0 


DEBITS 


/SlV 

2S 

/ *0 

OS 









. /32y_ 

70 



58 









. 3- 7.7 

so 



.. 2 *7. 

SO 



59 









//q3 

as 



//73 

*5 



60 


Co 

?c 0 


y 3/0 


..190. 

50 



.333 


(s V 

/o 



61 

~ / 




//Goo 


7 






//Coo 



Certificates of Deposit 

62 

















63 
















Interest anti Discount 

64 





. joq 








. . jo q 



('learinp House 

65 


60 

/jc 

/c 









t/ G/ 

Go 


Federal Reserve Bank 

66 









__*13 

S3 



a+/3 




67 

68 

• 
































69 

















70 

















71 
















Total Debits (Cash Cr.)_ 

72 

3033 

23 

j/fJO. 

■ 

/A 0/3 
1000 


/qo. 

moo 

50 

393A 

CfO 

_3f.s 


22235 

6r 


('ash on Hand 

30 

2 070 

/ 0. CO 


30,7 2/ 

Co 

LA/?#/, 



Totals_ 

/ 

A/ /CS 

4/ 

23*0 

U 

/ 7 0/0 


Gc/c 

So 

/*** 

ao 

3m>/ 

(0 O 

C3732 

70 



CASH “MAKE-UP” 


TELLERS 

Cold 

Silver 

Currency 

Nickels 
and Cents 

Cash 

Items 

Total 


Receiving . . . . . . . 

. 




. 3 QJ0- 






2.(170 



Exchange . 





/coo 






r 

_/j00 Q 



Loans and Discount_ _ 





/coo 






30 CO. 



Collection_ 





300 






. .30 0. 



Transit _ 














Paying _ . . . 





3/20 . 




a/G/ 

Go 

JSJ /. 

GO 


Vault ... 

j r/ 00 


lo2SO 

K<> 

23305 


*70 

2.0 



35/35 



Totals .. 

3/00 


73S0 

fQ 

22005 


*20 

JO 

uG / 

(3 

7/27/ 

Go 

















Illustration No. 34 . General Proof Sheet. 

Explanation: The names of the accounts are written at the left and are indicated by the 
same number as on the tellers’ proof sheets. A column is provided for the transactions per¬ 
formed by each teller. The information on the general proof sheet is obtained from the trans¬ 
actions recorded by each teller (Illustrations 28-33). The entries on lines 14-27 show cash re¬ 
ceipts and correspond to the debit side of a cash book; the entries on lines 57-71 show cash pay¬ 
ments and correspond to the credit side of a cash book. The information in the cash “make-up” 
is obtained from the tellers’ proof sheets and a vault slip provided by the vault clerk. 






























































































































BOOKS OF ACCOUNT 


5i 


§ 76. Bank Drafts Register. The purpose of ^this register is to provide 
a record for the exchange issued on correspondent banks. The record should 
show the date, number, payee, purchaser, and amount. Columns should be 
provided so that all the information in connection with each draft may be re¬ 
corded on one line. Each draft is recorded before it is delivered to the purchaser; 
when it has been paid and the canceled draft returned, the date of payment is 
entered in the “Date Paid” column. A separate register should be provided 
for the drafts issued on each correspondent bank. The exchange teller reports 
on his daily proof sheet the drafts issued and paid during the day; this is entered 
on the general proof sheet and posted to the correspondent banks’ accounts 
in the general ledger. 

MevYork Draft Register 



Illustration No. 35. New York Drafts Register. 

Explanation: The entry on each line shows the record of a bank draft issued. The date 
of payment is not entered in the “Date Paid” column until the canceled draft has been returned 
to the bank. 

§ 77. Certified Checks Register. The purpose of this book is to pro¬ 
vide a record for the checks certified by the cashier or other authorized official. 
The record for each check should show the date of the check, the maker, payee, 
number, and amount. Columns should be provided for this information so that 
the complete record of each check may be made on one line; an additional 
column should be provided for the date the check is paid. The record in this 
book alsb includes a report to the depositors bookkeeper of the charge he is to 
make against the depositor’s account, because the bank has guaranteed pay¬ 
ment and the check must be charged to the depositor, otherwise he might with¬ 
draw the funds on deposit before the check is returned to the bank for payment. 
All the facts in regard to the check are entered in the register at the time it is 

(Continued on page 52 ) 

Certified Check Register 


Date/ 

19 

Drawn By 

Payable To 

C\o 

Amount 


■te 

Me Paid 


7 










3/ 

'7 





cc 

/ 23- 












C7 

/3 7 

S 0 


3/2 

So 


3/ 

'9 


2-0 



u 

A'c'fo 






















Illustration No. 36. Certified Checks Register. 

Explanation: The entry on each line shows the complete record of a certified check, 
including the date certified and the date paid; the date paid is not entered until the bank has 
paid the check. 














































52 


20TH CENTURY BANK ACCOUNTING 


certified; when the check is returned to the bank, the date of payment is entered 
in the register. The exchange teller reports the checks certified and the certified 
checks paid each day on his proof sheet; this information is recorded on the 
general proof sheet and posted to the Certified Checks account in the general 
ledger. 

§ 78. Cashier’s Checks Register. The purpose of this book is to pro¬ 
vide a record for the cashier’s checks issued by the cashier. This record in¬ 
cludes the date of issue, payee, purchaser, number, and amount. Columns 
should be provided for this information so that the complete record of each 
check may be made on one line; an additional column should be provided 
for the date the cashier’s check is paid by the bank. The record in the cashier’s 
checks register is made after the check is issued and before it is given to the 
purchaser. The exchange teller reports the total cashier’s checks issued and 
paid each day on his daily proof sheet; this information is recorded on the gen¬ 
eral proof sheet and posted to the Cashier’s Checks account in the general ledger. 


Cashiers Check Register 


Date 

19 

Payable to Order of 

By Whom Purchased 

t\o 

Amount 

V 

Daily 

Totals 

Date Paid 


'7 



30f 

/ 60 






3 / 

/<? 





3/0 

200 






3/ 

/? 





3// 

3*S 






3/ 

/<? 





3/2- 


xs 


7*9 

xs 





/j 



3/3 

S'* 












3/*/ 

Z //-0 

/0 


/<?0 

/0 





Illustration No. 37. Cashier’s Checks Register. 

Explanation: Each line contains a complete record of a cashier’s check. The entry in the 
last column at the right is not made until the check has been paid by the bank. 

§ 79. Certificates of Deposit Register. The purpose of this book is 
to provide a record for each certificate of deposit issued by the bank. This 
record should show the date, name of the one to whom issued, name of the one 

(Continued on page 55) 

Certificate: of Deposit Register 


Pate 

19 

ToWhom Issued 

DepositedDy 

Pio 

Amount 

V 

Daily 

Totals 

Time 

Rate 

Date Paid 

JI00, 

/0 



/3 / 

ZSX 

Z33 

Z3/Z 

/JS 

/si 

/J 7 

3/00 

/00 

2-0*/ 

<^00 

/000 

2 jTo 

300 



VS00 

/S0 


A**/ 

C/7UK> 

Cnu*> 

irtut 

£»ux> 

uy a 

07 

07 

*7 


• ?/ 

"7 


Illustration No. 38. Certificates of Deposit Register. 

Explanation: The entry on each line shows the complete record of a certificate of deposit. 
The information in the “Date Paid” column is not entered until the certificate is paid. 












































BOOKS OF ACCOUNT 


53 


who made the deposit, number, amount, time specified for interest, and rate of 
interest. Columns should be provided so that a complete record may be made 
on one line; an additional column should be provided for the date of payment. 
The record is made after the certificate of deposit has been written, but before 
it is given to the purchaser; the date of payment is not entered until the certi¬ 
ficate has been paid. The exchange teller reports the certificates of deposit 
issued and paid, together with the interest on those paid, at the close of each 
day; this information is recorded on the general proof sheet and posted to the 
Certificates of Deposit account in the general ledger. 

§ 80. Loans and Discounts Register. The purpose of this book is 
to provide a record for the notes, drafts, trade acceptances, and other commer¬ 
cial paper received by the bank as evidence of loans. The record should show 
the date of the paper, number given the loan, name of the one who is to pay it, 
the last endorser, where payable, the time, due date, rate of interest, number 
of days for which it is discounted, face of the paper, interest, discount, proceeds, 
and account credited for the proceeds. Columns should be provided so that 
a complete record of each paper may be made on one line; additional columns 
should be provided for the “Date Paid” and “Remarks.” Full information in 
regard to each paper is recorded at the time it is received, and the date of pay¬ 
ment entered when it has been collected. Special comments in regard to the 
paper may be written in the “Remarks” column (see Illustration 40 on pages 54 
and 55.) The note teller in charge of the loans and discounts department re¬ 
ports on his daily proof sheet the loans made and collected during the day, also 
the interest and discount involved. This information is transferred to the general 
proof sheet and posted to the Loans and Discounts, and Interest and Discount 
accounts. 

§ 81. Loans and Discounts Tickler. The purpose of this book is to 
provide a record under the date due for the notes, drafts, trade acceptances, 
and other commercial paper which have been discounted or on which loans have 
been made. The information in connection with each paper should show the 
name of the one who is to pay it, his address, register number, amount to be 
collected (which is the face of the paper plus the interest, if it is interest-bearing), 
the date due, and the date paid. Columns are provided so that all the information 
may be entered on one line. The record in the tickler should be made at the 
same time as the record in the register; this includes all paper except that pay¬ 
able at another bank. Paper payable at another bank is not entered in the tickler 
because it will be sent to the bank at which it is payable for collection, hence 
the exact date of collection is not known. The record in the tickler should be 
complete enough to provide all the information necessary for sending notices 
of the due date to those who are to make payment. 


MERCHANTS NATIONAL BANK 

Loans and Discounts Tickler_ December 10 _ 192 _ 


Date of 
Paper 

Reg. 

No. 

PAYER 
(Maker or Drawee) 

ADDRESS 

Paper 

Interest 

Amount to 
be Collected 

REMARKS 

Sect.11 

517 

Griffith Lbr. Co. 

1022 E. 4th St. 

3500 


52 

50 

3552 

50 


Oct. 28 

520 

Cope Electric Co. 

306 N. Sycamore 

750 


7 

50 

757 

60 



Illustration No. 39. Loans and Discounts Tickler. 


Explanation: The information on each line shows a record of one note, draft or trade 
acceptance. All the entries show the commercial paper due on the date for which the tickler 
sheet was prepared. 






















54 


20TH CENTURY BANK ACCOUNTING 



Illustration No. 40. Left Page of Loans and Discount Register. 


Collection 


Date Rea. 
19- 

Our 

C\o 

, Payer 
maker or Drawee 

Endorser 

Pay's e or Drawer 

Where Payable 

Where 5ent 


2- 

3 

/A 

2** 

2*7 

2Wf 

2*? 

23-0 

2S/ 

2S2- 


(£>- 

(£kcssls~$^ei.-t-t^s 

CascAs ~^^gt0u£s 



Illustration No. 41. Left Page of Collection Register. 


§ 82. Collection Register. The purpose of this book is to provide 
a record for the notes, drafts, trade acceptances and other commercial paper 
left with the bank for collection. This record should show the date the paper 
was received by the bank, the number of the collection, name of the maker, 
name of the last endorser, where payable, date of the paper, time, due date, 
face, collection charges, and the disposition to be made of the proceeds. Columns 
should be provided so that all this information may be recorded on one line; 
additional columns are provided for the “Date Paid” and “Remarks,” (see 
Illustration No. 41. The commercial paper recorded in this book does not 























BOOKS OF ACCOUNT 


55 


Register 



Register 



belong to the bank, hence no entries are made in the accounts until the paper 
is collected; at that time, the note teller in charge of this department disposes 
of the proceeds according to the information given in the register. 

The collection teller reports on his daily proof sheet the amount of each 
commercial paper collected, the method of settlement, and the charges for 
collection. If the proceeds are credited to the account of a depositor, this 
information is passed to the depositors bookkeeper for record, and the depositor 
is notified to call and receive credit in his pass book for the amount. The col¬ 
lection charges are entered on the general proof sheet and posted to the Collec¬ 
tion account in the general ledger. 






























































5^ 


20TH CENTURY BANK ACCOUNTING 


§ 83. Collection Tickler. The purpose of this book is to, provide a 
record under the due date for the commercial paper received by the bank for 
collection. The information in connection with each paper shows the name 
and address of the maker, register number, amount to be collected, collection 
charges collected, and the date of the collection. Columns are provided so 
that all this information may be entered on one line. Commercial paper pay¬ 
able at another bank is not entered in the collection tickler because it will be 
sent to this bank for collection, hence the exact date of collection is not known. 


MERCHANTS NATIONAL BANK 

Collection Tickler December 10 _ 192 . 


Date of 

Reg. 

PAYER 


Face of 



Amount to 

Collect 


Paper 

No. 

(Maker or Drawee) 

ADDRESS 

Paper 


Interest 

be Collected 

Chgs 


REMARKS 

Oct.11 

245 

Earl Jesse 

RR #2, City 

50 

50 



50 

50 


50 


Fov.30 

247 

?b*ank Kellogg 

621 Orange Ave. 

140 




140 



55 



Illustration No. 42. Collection Tickler. 

Explanation: The information on each line shows a complete record of one note, draft 
or trade acceptance. All the entries show the commercial paper due on the date for which the 
tickler sheet was prepared. The collection charges are not entered until the paper has been 
collected. 

§ 84. Remittance Register. The purpose of this book is to provide a 
record for each cash item sent to an out-of-town b^nk for collection. The record 
should show the date of the transaction, the maker of the check, the last en¬ 
dorser, the bank on which it is payable, the amount, number and date of the 
check. Columns should be provided so that full information in regard to each 
cash item may be recorded on one line. By the use of carbon paper, a part 
of the information required in this register may be made at the time the let¬ 
ter of advice is prepared; this is shown in Illustration No. 19. 

The remittance register is usually made up of loose sheets, which are filed 
in a binder after the cash items have been recorded and the transit letter sec¬ 
tion removed. Loose sheets are necessary when the transit letters are prepared 
on a transit machine. Illustration No. 21. 

The transit teller reports on his daily proof sheet the amount of out-of- 
town cash items received from and sent to correspondent banks. This informa¬ 
tion is entered on the general proof sheet and posted to the account with each 
bank in the general ledger. 

§ 85. Depositors Ledger. The purpose of this ledger is to provide 
a record for the transactions with depositors. The record in this book is made 
from the deposit tickets prepared by depositors, credit tickets issued by the 
loans and discounts and collection departments, and the checks written by the 
depositors. Each depositor’s account should show his balance at the beginning 
of the day, the date and amount of each deposit made during the day, the date 
and amount of each check paid by the bank during the day, and his balance 
at the close of the day. Columns should be provided so that as much of this 
information as possible may be entered on one line. Illustration No. 43 shows 
the form of depositors’ ledger used in the practice set which accompanies this 
text. 
























BOOKS OF ACCOUNT 


57 





Date 


Checks in Detail 

Tofcvl 

Checks 

Deposits 

Balance 

'7- 

<7 

73*2*. 








7 3-73 

3 


/a 

67 




3-67 

3a 

70 0 


7 a 3 7 

63 


2 a 

3 0 




3 3 a a 




3 2-47 6 

63 


3/ 

/t 

t /0 

■ & 32- 




3-/7 

23 





3 T& 0 


2-3# 










3 73- 




/ J C3 

70 



2767 

33 


Illustration No. 43. Depositors Ledger Account. 

Explanation: E. Scott, a depositor whose number in the depositors ledger is 49, has a 

balance of $9,514.13 on December 9. On December 10, the bank paid two checks, $67.50 and 
$500.00; total, $567.50. December 10, Mr. Scott deposited $100.00. At the close of the day 
his balance will be ascertained by adding the deposit to the old balance and subtracting the total 
of the two checks from the result ($9,514.13 + $100.00 = $9,614.13—$567.50 = $9,046.63). 
December 20, two checks were canceled, but no deposits received, hence the new balance at the 
close of this day will be the difference between the old balance and the total of the two checks. 
December 31 five checks were paid by the bank, and Mr. Scott received credit for $1,486.25, 
the proceeds of a note discounted. His new balance on the 31st is ascertained in the same manner 
as on the 10th. 

§ 86. Method of Making the Entry. As the deposit tickets come 
to the depositors bookkeeper from the tellers, they are arranged alphabetically, 
and an entry made in a depositor’s account for each deposit or the total, 
if more than one is made during the day. The deposit tickets are filed alpha¬ 
betically for future reference. As the canceled checks come to the depositors 
bookkeeper from the various tellers, they are arranged alphabetically. The 
amount of each check is entered in the “Checks in Detail” column and the total 
in the “Total Checks” column. The checks are filed alphabetically and retained 
by the bank until the first of the month, at which time they are given to the 
customer, together with a statement of his account as it appears in the depositors 
ledger. 

§ 87. Method of Making the Proof. The depositors bookkeeper knows 
that all new balances are extended correctly when the total checks paid during 
the day deducted from the sum of the balances in the morning, plus the de¬ 
posits for the day, equals the total of the balances at the close of the day. In 
other words, the proof of all the balances is made in the same manner as the 
extension of the balance for one depositor—that is, old balance plus deposits 
minus checks equals the new balance. The depositors bookkeeper must not 
only prove the correctness of his additions and subtractions, but must also 
prove that each deposit and check has been entered correctly; this is proved by 
the Depositors Ledger Daily Trial Balance. This proof does not detect errors 
in posting to the wrong account; these are detected by checking, and by com¬ 
plaints received from depositors when the monthly statements are rendered. 

§ 88. The Depositors Ledger —A Subsidiary Ledger. An account 
is kept with Deposits in the general ledger. The debits and credits to this ac- 






















58 


20TH CENTURY BANK ACCOUNTING 


count are made from the entries on the general proof sheet, the information 
for these being obtained from the tellers’ daily proof sheets. Since the deposits 
and checks entered in the depositors ledger are reported on the tellers’ daily 
proof sheets, it is evident that the balance of the Deposits account in the gen¬ 
eral ledger will be the same as the total balances due depositors if the work 
of the depositors bookkeeper is correct. As explained, the depositors bookkeeper 
proves his work by a Trial Balance; this does not contain a list of debits and 
credits, but a list of the balances due depositors and the total, which should 
equal the balance of the Deposits account in the general ledger. The deposi¬ 
tors ledger is a subsidiary ledger, because the total of the balances of the various 
accounts in it must be the same as the balance of the Deposits account in the 
general ledger. 

§ 89 . Arrangement of Accounts in the Depositors Ledger. The 

accounts in the depositors’ ledger may be arranged alphabetically and according 
to their activity. If the more active accounts are grouped to themselves in 
the ledger, much time will be saved in making the proof, because no new bal¬ 
ances are necessary for those accounts which have not been affected by deposits 
or checks during the day. 

§ 90. Depositor’s Monthly Statement. The depositor is requested 
to leave his pass book with the bank at the close of each month. This is re¬ 
turned to him on the first of the month or as soon thereafter as possible, to¬ 
gether with a statement of his account as it appears in the depositors ledger 
of the bank and the checks which have been paid bv the bank during the month. 
The pass book is ruled and the balance brought down, as in Illustration No. 
io. The statement contains a list of the deposits, canceled checks, and the 
balance, which is the same as that shown in the pass book. The depositor 
can check the amount of each deposit with the entry in his pass book, and the 
amount of each canceled check with the entry on his check stub. The depositor 
reconciles his balance with that shown by the bank by deducting the total of 

any checks issued, but not yet paid by the 
bank from the bank balance. Illustration 
No. 44 shows the statement rendered for 
the account of E. Scott in Illustration 
No. 43. 


Explanation: This statement has the same 
meaning to the depositor of a bank as the monthly 
statement rendered by a grocer to one of his cus¬ 
tomers, except that the bank’s statement shows 
the amount the depositor has remaining in the 
bank, while the grocer’s statement shows the 
amount the customer owes for merchandise pur¬ 
chased during the month. The facts for the bank’s 
statement are obtained from the entries in the de¬ 
positors ledger (Illustration No. 43.) 



MONTHLY STATEMENT 

December 31 

192 

E. 

Scott 



IN ACCOUNT WITH 

MERCHANTS NATIONAL BANK 

OF CENTERVILLE 

JETXPI.ANATION OF CHARACTERS: NT)-N..lo Dfeniunml CI.-Coll.r-lion 

C< -C.rlilir.-rl Clufk KC—Error Cr.rrt-rtt-tl. I.ST-T-.lal .-vr-nrl clr-r-U 
OD-Ovr-rrlrrifl. I’lr-ur*. nomine M unrc. If nr. error >s r -;rorlr-rl in ten liny Hr.' 

Date 

Checks in Detail 

Dale 

Deposits 


Bulb hu Brought FkmI. 

Dec. 9 

9514.13 

Dec.10 

67.50 500.00 

Dec.10 

100.00 

20 

31 

80C.00 C05CC0.00 

16.40 642.00 
500.00 230.00 
375.00 

Dec.31 

ND1486.25 


Balance 


2969.48 


Illustration No. 44. Statement of Account with a Depositor. 











BOOKS OF ACCOUNT 


59 


§ 91. Use of Machines in Bank Bookkeeping. The Burroughs Ad¬ 
ding Machine Company, Detroit, Michigan, manufactures a number of special 
machines which are used extensively in bank bookkeeping. The posting machine 
is arranged so that the depositors bookkeeper may enter the deposits, checks, 
and new balance direct in the depositors’ accounts. The amount of the de¬ 
posits and checks posted to a depositor’s account and his new balance are re¬ 
tained in the machine until all deposits and checks have been entered and the 
new balances extended. The proof for all the extensions is then made by the 
proper mechanical operation of the machine. The transit machine is arranged 
so that all the information needed in connection with the transit letters and 
remittance register may be made on the machine, and the total of each remit- 

(Continued on page 66 ) 


f cur FT rjn The Federal Title & Trust Co sea«ia fa. "A 

NAME Jones 4c Company 

---—- address _3.;avsr Falls, 

Old balance 

0ATC CHCCKS IN OCTAIl 

OATS OtPOIITI 

DATE NEW ..LANCE 


bro6gh* LA forwarot 

*l: 1 5 0 0.0 0 


5 0 0.0 0 
1,6 8 9.4 0 

1,9 8 4.4 0 
1,8 6 3.4 0 
1,716.10 

1,6 7 S3 0 
1,5 7 1.8 0 

8 12.10 - 4 150 - 7.0 0- 

3 101.00 - 40.00 - 7.60 - 

Aua 3 6.4 0 - 

auo 1 121.00 - 

aus « 101.30 - 61.00 - 45.00 - 

auo 9 4 3.0-0 - 17.0 0- 8 0.0 0 - 

»ua 9 4.0 0 - 10 0.0 0 - 

ausio 11.0 0 - 5.0 0 - 8 5.0 0 - 

auoio 1 2.1 0 — 

*uo 8 1,2 5 0.0 0 

AUO 3 4 5 0.0 0 

«« « 6 0.0 0 

AUO » 7 6.7 0 

AUO 9 12 4.0 0 

»uo 1 0 15 0.0 0 

AUO 3 1,6 8 9.4 0 * 

AUO 3 1,9 8 4.4 0 t» 

AUO 8 1,863.40 * 

AUO « 1,7 1 6 J. 0 * 

AUO 9 1,67 2.8 0 * 

»uo 1 0 1,5 7 1.8 0 * 

auo 1 0 1,7 0 9.7 0 * 


2,10 2 

2,4 5 7 
2,4 2 1 
2,3 5 

2.2 4 

2.3 0 < 
2,2 8 1 
2,2 6 5 


The Federal Title & Trust Co 


■l one 8 L Coup any 


Beuver Falls. Pa. 


Statement of your i 




OLD BALANCE 


1,9 8 4.4 0 
1,8 6 3.4 0 
1,716.10 


1,7 0 9.7 0 
1,6 6 6.2 0 
1,5 7 9.9 0 


2,10241 

2,4 5 7.9 1 
2,42 IS 1 
2,3 5 3.4 1 

2.2 4 1.31 

2.3 0 0.9 6 
2,2 81.01 
2,2 6 5.3 C 


CHECKS IN DETAIL 


101.0 0 
6.4 0 
121.0 0 
1 0 1.3 0 
4 3.0 0 
4.0 0 

11 . 00 ' 
12.10 
4 3.5 0 

3 2.3 0 

4 3.0 4 


4 3.0 0 
1 2 5.0 0 • 
101.0 0 ■ 

5 3.0 0 ■ 

112.10 ■ 

2 1.2 0 • 
19.95 ■ 
31.5 0 ■ 
115.0 0 • 


61.0 0 ■ 
17.0 0 ■ 
1 0 0.0 0 < 


4.5 0 
5.00 


11.0 0 - 

4 0.0 0 - 


5 0 0.0 0 


1,2.5 0.0 0 
4 5 0.0 0 
6 0.0 0 


5 0 5.0 0 
12 0.0 0 
11.2 5 


5 6.0 0 
3 3 3.5 0 
65.00 


1,9 8 4.4 0 
1,8 6 3.4 0 
1,7 16.10 


1,7 0 9.7 0 
1,6 6 6.2 0 
1,5 7 9.9 0 


,1 7 2,1 0 2.4 1 , 

11 » 2,4 5 7.9 1 ■ 

> 9 3 2,42 1.9 1, 

3 4 2,3 5 3.4 1 • 

12 6 2,2 4 1.3 1 , 

i a e 2,3 0 0.9 6 • 

12 » 2,2 81.01, 

>3 0 2,26536. 

'3 1 2,47 7.8 6. 


«3 1 2,4 7 7.8 6 



Illustration No. 45. 

Depositor’s Account and Statement of Account prepared on a machine, 



















































6o 


20TH CENTURY BANK ACCOUNTING 


tance letter retained until the close of the day when the proof is made through 
the proper mechanical operation of the machine. The statement machine is 
so arranged that all information needed in connection with rendering state¬ 
ments to depositors may be shown on the statement. Full information in re¬ 
gard to the operation of these machines can be obtained from the Burroughs 
Adding Machine Company. 


§ 92. General Ledger. The general ledger contains the general ac¬ 
counts necessary in connection with the operation. of the bank. The outline 
of accounts given on page 61 includes the accounts usually found in the 
general ledger of a bank. Illustration No. 46 shows the ruling of the general 
ledger used in practice set which accompanies this text. The posting to the 
general ledger and the extensions of the balances are proved by a Trial Balance. 
Since the work of each day is recorded on the tellers’ daily proof sheets and 
transferred to a daily general proof sheet, a Trial Balance is taken at the close 
of each day. 




Date 

Explanation 

Debit 

Credit 

Dr Balance 

Cr. Balance 




/2-<7 2 3/ 

/ 2 . 



/2-0 2-3 / 

22 




/<? 


// 60a 


At 23~o 


/ 2 73S/ 

/2 




2-0 


7 7^7 

20 



/2f <7 7f' 

32 




3/ 


/3 262 

//At 



Z3// 6 *20 

7<Z> 




Illustration No. 46. Loans and Discounts Account. 

Explanation: The arrangement of the general proof sheet is such that not more than 
one amount is posted each day to the debit and credit side of an account that may be affected. 
Columns in the general ledger are so arranged that this posting can be entered on one line. The 
new balance is obtained by adding a debit posting to a debit balance and subtracting a credit 
posting, or by adding a credit posting to a credit balance and deducting a debit posting. 




















ACCOUNTS 


61 


OUTLINE OF ACCOUNTS KEPT IN THE BANKING SET 

§ 93 . The outline below includes all accounts made necessary by recording 
transactions in the practice set which accompanies this text. These are dis¬ 
cussed in §§ 94-127. 


Current Assets 


Cash 

Loans and Discounts 
United States Bonds 
Other Bonds 

Federal Reserve Bank Stock 
1 Other Stock 

Federal Reserve Bank 
Correspondent Banks 
Sundry Banks 
5% Redemption Fund 


Fixed Assets 


Banking House and Lot 
Real Estate 
Furniture and Fixtures 


Current Liabilities 


Circulation 
Deposits 
Cashier’s Checks 
I Certificates of Deposit 
[ Certified Checks 


Capital 


Income 


Capital Stock 
Surplus 

Undivided Profits 
Dividend 
Profit and Loss 

Interest 

Discount 

Rediscount 

Collection 

Exchange 

Safety Deposit Rent 
Profit on Sale of Real Estate 
Profit on Sale of Bonds 


Operating Cost 


General Expenses 












62 


20TH CENTURY BANK ACCOUNTING 


CASH ACCOUNT 

§ 94. The Object of this Account is to show the total receipts and 
payments of cash and the cash balance at the close of each day. The receipts 
and payments in the different departments are recorded in the general cash 
book (the general bookkeeper’s proof sheet), and the total receipts and pay¬ 
ments for each day posted to the Cash account. A Cash account is not neces¬ 
sary because the record in the general cash book will show the cash balance 
at the close of each day. 

Debit this account: Credit this account: 

(i) At the close of each business day, (2) At the close of each business day, 
with the total cash receipts. with the total cash payments. 

The balance of this account shows the amount of cash and cash items 
in the vault at the close of each day; it is shown as a current asset on the 
Statement of Resources and Liabilities. 

LOANS AND DISCOUNTS ACCOUNT 

§ 95. The Object of this Account is to show the total value of the notes, 
drafts and trade acceptances which the bank holds as evidences of loans which 
it has made. The value shown in connection with each loan is usually the amount 
stated in the paper. Thus, if the bank should purchase a note in which it was 
stated that the maker agreed to pay $1,000.00 on a definite date, this value 
would be shown in the Loans and Discounts account whether the bank paid 
more or less for it, or whether it stated in the face that a certain amount of in¬ 
terest should be collected at maturity. The difference between the value of 
the note or the value of the loan and the amount paid or collected by the bank 
is shown in an account with Interest or Interest and Discount. 

The caption of this account may be “Loans,” “Discounts,” “Loans and 
Discounts,” or any other name which the officers of the bank may designate. 

Debit this account: Credit this account: 

(2) At the close of each business day, 
with the total amount collected 
from paper, the value of which 
was charged to this account. 

The balance of this account shows the value of the notes owned by the 
bank; it is shown as a current asset on the Statement of Resources and Lia¬ 
bilities. 


(1) At the close of each business day, 
with the total amount of loans 
made during the day. 


UNITED STATES BONDS ACCOUNT 

§ 96. The Object of this Account is to show the par value of United 
States bonds owned by a national bank and deposited with the Comptroller 
of Currency as security for circulating notes (currency) issued by the bank. 

Debit this account: Credit this account: 

(1) With the par value of bonds (2) With the par value of bonds 
when purchased. when sold. 

The balance of this account shows the par value of United States bonds 
owned by the bank, purchased for use in securing its circulating notes; it is 
shown as a current asset on the Statement of Resources and Liabilities. 


ACCOUNTS 


63 


OTHER BOND ACCOUNTS 

§ 97. It is the Better Practice to provide a separate account for each 
kind of bonds owned by the bank. These may include the various series of United 
States bonds issued during the World War, United States certificates, postal 
savings stamps, bonds issued by corporations engaged in a mercantile or manu¬ 
facturing business, and the various other classes of bonds which are for sale. 
The nature of the account with each class of bonds is the same as that described 
in § 96, and the same debits and credits apply. The balance of each bond 
account is shown as a current asset on the Statement of Resources and Lia¬ 
bilities. 

Note: One general Bond account may be kept in the same manner as a Notes Receivable 
account, in which case the detailed record of each purchase and sale would be shown in a bond 
register, the same as the facts concerning notes and drafts are shown in a notes receivable book. 


FEDERAL RESERVE BANK STOCK ACCOUNT 

§ 98. The Object of this Account is to show the par value of Federal 
Reserve Bank stock owned by the bank. All national banks, and those state 
banks which comply with the conditions imposed by the Federal Reserve Act, 
are members of the Federal Reserve Bank in their district and, as members, 
must purchase stock equal in value to 6% of their capital. Each member bank 
increases or decreases its stock in the Federal Reserve Bank on the basis of the 
increase or decrease of its own capital. 

Debit this account: Credit this account: 

(1) With the par value of Federal (2) With the par value of Federal 
Reserve Bank stock purchased. Reserve Bank stock sold. 

The balance of this account shows the par value of the Federal Reserve 
Bank stock owned by the bank. It is in the nature of a fixed asset because the 
bank must own it in order to be affiliated with the Federal Reserve Bank system, 
and it can not be hypothecated for a loan. However, it may be regarded as a 
current asset as the bank shares in the profit resulting from the operations of 
the Federal Reserve Bank. For this reason it is usually listed with the current 
assets on the Statement of Resources and Liabilities. 


OTHER STOCK ACCOUNTS 

§ 99. A Separate Account should be kept with the stock of any cor¬ 
poration which the bank may purchase. The debits and credits applicable to 
each stock account would be the same as those described in § 98, except that 
the bank would have the privilege of selling these stocks or hypothecating them 
for a loan if it so desired. 


FEDERAL RESERVE BANK ACCOUNT 

§ 100. The Object of this Account is to show the result of transac¬ 
tions with the Federal Reserve Bank. Each bank which is a member of the 
Federal Reserve system (§ 5) has an account with the Federal Reserve Bank 
or branch of this bank in its district. Thus, each member bank in Cleveland, 
Ohio, and the territory adjacent to Cleveland, operates under the Cleveland 
Reserve Bank and has an account with it; each bank in Cincinnati, Ohio, and 


6 4 


20TH CENTURY BANK ACCOUNTING 


the territory adjacent to Cincinnati, operates under the branch reserve bank in 
Cincinnati and has an account with it. 

Debit this account: Credit this account: 


(1) With the cash or cash items sent 

to it; 

(2) With the proceeds of notes re¬ 

discounted with it; 

(3) With any interest allowed by it. 


(4) With the cash or cash items 

received from it; 

(5) With the proceeds of notes re¬ 

discounted for it; 

(6) With any interest allowed it. 


The balance of this account is either a debit or credit, depending on the 
transactions with the bank. If the difference between the two sides shows a 
debit balance, this indicates that the reserve bank owes the member bank, and 
the balance is shown as an asset on the Statement of Resources and Liabilities; 
if it shows a credit balance, it indicates that the member bank owes the reserve 
bank, and the balance is shown as a liability on the Statement of Resources 
and Liabilities. 


CORRESPONDENT BANK ACCOUNT 

§ 101. The Object of this Account is to show the result of transactions 
with a correspondent bank. As explained in § 57, a correspondent bank is one 
with which arrangements have been made for the collection of notes, drafts, 
trade acceptances, checks and other cash items which are payable in its territory. 

The transactions with a correspondent bank are, to a certain extent, the same 
as those of a member bank with the Federal Reserve Bank, and the debits and 
credits described in § 100, 1-6, will apply to the transactions with a corre¬ 

spondent bank. Banks which are members of the Federal Reserve system re¬ 
discount with Federal reserve banks, hence the transactions described in § 100, 
If 2 and 5, might not apply to their transactions with correspondent banks. 
Banks which are not members of the Federal Reserve system might rediscount 
with correspondent banks, hence their transactions with correspondent banks 
would be the same as those of member banks with a Federal reserve bank. 

The balance of a correspondent bank account is an asset or a liability, and 
is shown on the Statement of Resources and Liabilities in the same manner as 
the balance of the Federal Reserve Bank account (§ 100). 

SUNDRY BANKS ACCOUNT 

§ 102. The Object of this Account is to show the result of transactions 
with banks other than the Federal Reserve Bank and correspondent banks. 
As explained in the second paragraph of § 57, cash items payable outside of the 
territory of a correspondent bank are sent direct to the bank on which they are 
drawn, for collection and remittance. An account may be opened in the general 
ledger with each of these banks, or the transactions recorded in an account 
with “Sundry Banks.” Since remittances are to be received for the cash items 
sent a special bank for collection and the bank may never have another cash 
item payable by this bank, the Sundry Banks account is used quite extensively. 
The name of the bank to which the cash item is sent should be indicated in the 
explanation column of the Sundry Banks account, and when remittance is 
received, the credit entered on the opposite side of the account on the same line 
with the debit. 

The Sundry Banks account is debited with the amount of each remittance 
letter accompanying one or more cash items sent for remittance, and credited 


ACCOUNTS 65 

with the same amount when remittance is received; any charges for collection 
are debited to the Collection account. 

The balance of this account is listed as an asset on the Statement of Re¬ 
sources and Liabilities in the same manner as that of the Federal Reserve Bank 
or a correspondent bank account. 


5% REDEMPTION FUND ACCOUNT 


§ 103. The Object of this Account is to show the amount deposited 
with the Comptroller of Currency to redeem the mutilated circulating notes 
issued by the bank. A national bank is required to deposit this fund in order 
that the Comptroller of Currency may redeem its mutilated circulating notes. 


Debit this account: 

(1) With the amount sent to the 
Comptroller of Currency at 
the time the bank is organized 
and its circulating notes author¬ 
ized, and when additional cir¬ 
culating notes are authorized. 


Credit this account: 

(2) With the amount of the fund 
when it is returned by the 
Comptroller of Currency, or 
any part of it should the 
amount of circulating notes be 
reduced. 


The balance of this account shows 5% of the circulating notes authorized 
for issue by the bank: it is shown as a current asset on the Statement of Re¬ 
sources and Liabilities. 


BANKING HOUSE AND LOT 


§ 104. The Object of this Account is to show the cost of the lot and 
building owned by the bank and used by it as a home. The cost of this real 
estate is determined by the purchase price of the lot and building; the cost of 
any improvements made necessary by deterioration is an operating cost of the 
bank. 

Debit this account: Credit this account: 


(1) With the cost of the lot and build¬ 

ing at the time of purchase; 

(2) With the cost of improvements 

which add to the value. 


(3) With the cost as shown by the 

debit side when the building 
and lot are sold. 

(4) With the cost of any part or all 

of the building if destroyed by 
by fire, water, or other causes. 


The balance of this account shows the cost value of the building and lot 
owned by the bank and occupied by it as a home; it is shown as a fixed asset 
on the Statement of Resources and Liabilities. 


REAL ESTATE 

§ 105. National Banks are not allowed to buy real estate except for a 
home. Very few state banks deal in real estate even though they are permitted 
to do so by law. As a result of the law and of custom, very few banks own 
real estate except that in which their business is transacted. Occasionally it 
may be necessary for a bank to purchase real estate in connection with collect¬ 
ing a loan in order to protect itself against loss. National banks are required 
to dispose of such real estate within a limited time. State banks usually dis¬ 
pose of it as soon as practical, because the holding of real estate is not a part 
of the banking business. The nature of all real estate accounts is the same 


66 


20TH CENTURY BANK ACCOUNTING 


and the debits and credits described in § 104 will apply to any real estate account. 
However, real estate purchased by the bank and held subject to sale would 
be shown on the Statement of Resources and Liabilities before the value of 
the bank’s home, because it is to be sold at an early date. 

FURNITURE AND FIXTURES ACCOUNT 

§ 106. The Object of this Account is to show the^ cost value of the 
fixtures and office equipment purchased by the bank for use in its operation. 
This consists of desks, typewriters, safes, files, bookcases, chairs, tables, parti¬ 
tions, tellers’ cages, counters, etc. 

Debit this account: Credit this account: 

(1) With the cost price of any furn- (2) With the cost price of any fur- 
iture and fixtures purchased niture and fixtures sold or 

for use in the bank. otherwise disposed of. 

The balance of this account shows the cost value of the furniture and fix¬ 
tures owned by the bank; it is shown as a fixed asset on the Statement of Re¬ 
sources and Liabilities. 

§ 107. Depreciation on fixed assets, whether it be furniture and fix¬ 
tures or buildings, may be shown through a reserve account, if desired. This 
depreciation would be one of the operating expenses of the bank. It is customary 
with banks to keep the buildings and furniture and fixtures in good condition 
and charge amounts paid for repairs to operating cost. If a Reserve for De¬ 
preciation account is set up, it would be credited with the estimated amount 
of depreciation at the close of each fiscal period, the proper operating account 
being debited. 


CAPITAL STOCK ACCOUNT 

§ 108. The Object of this Account is to show the capital stock au¬ 
thorized by the charter. National banks obtain their charter, or right to do 
business, from the Comptroller of Currency; state banks, from the state in 
which they are organized. The capital stock of a bank is represented bv shares 
in the same manner as any other corporation. The par value of each share 
of stock in a national bank is $100.00; the par value of each share in a state 
bank is governed by the law of the state in which the bank is organized. 

Debit this account: Credit this account: 

(1) With the par value of stock (2) With the par value of stock 
purchased and held in the issued at the time of organ- 

treasury or retired from the ization or subsequent thereto, 

capital stock of the bank. 

The balance of this account shows the par value of capital stock outstanding 
by the bank. This may be the same as that authorized by the charter or only 
a part of it. It is shown as a capital liability on the Statement of Resources 
and Liabilities. 


SURPLUS ACCOUNT 

§ 109. The Object of this Account is to show that part of the profit 
which .is set aside as permanent working capital. The profit resulting from the 
operations of the bank may be all withdrawn by the stockholders unless the 


ACCOUNTS 67 

law under which the charter was granted specifies that a certain part of the 
profit must be retained as operating capital. 

Debit this account: Credit this account: 

(1) With any amount of the surplus (2) With that part of the profit which 
which is taken out for a specific is set aside as permanent work- 

purpose. ing capital. 

The balance of this account is shown in connection with the Capital Stock 
on the Statement of Resources and Liabilities; it is that part of the accumu¬ 
lated profits retained by the board of directors as working capital for the bank. 

UNDIVIDED PROFITS ACCOUNT 

§ 110. The Object of this Account is to show that part of the profit 
which is retained temporarily as working capital for the bank. At the close 
of the fiscal period, that part of the profit to be set aside as dividend is trans- 
fered from the Profit and Loss account to the Dividend account; that part 
of the profit to be retained temporarily in the business, to the Undivided Profits 
account; and that part of the profit to be retained as permanent working cap¬ 
ital, to the Surplus account. 

The Undivided Profits account is debited with any part of the profit credited 
to this account when it is set aside as dividend or passed to the Surplus ac¬ 
count; it is credited with that part of the profit transferred to it at the close 
of the fiscal period. The balance is shown in connection with the Capital Stock 
and Surplus accounts on the Statement of Resources and Liabilities. 


DIVIDEND ACCOUNT 

§ 111. The Object of this Account is to show that part of the profit 
which is set aside as dividend for the stockholders. 

Debit this account: Credit this account: 

(1) With the amount of dividend (2) With that part of the profit set 
paid. aside as dividend. 

The balance of this account is a liability as it shows indebtedness to the 
stockholders. The account will usually balance, because checks are sent each 
stockholder at the time the dividend is declared. The balance would be shown 
as a liability on the Statement of Resources and Liabilities. 


PROFIT AND LOSS ACCOUNT 

§ 112. The Object of this Account is to show the income and operating 
cost for each fiscal period. It shows the same facts as the Statement of Profit 
and Loss prepared at the close of each fiscal period. The account is opened 
only for the purpose of closing the operating and income accounts, and its bal¬ 
ance is immediately closed into the Surplus and Undivided Profits or Dividend 
accounts. 

CIRCULATION ACCOUNT 

§ 113. A National Bank is permitted by its charter to issue paper money, 
usually referred to as “circulating notes.” These notes are secured by regis¬ 
tered United States bonds deposited with the Comptroller of Currency by the 


68 


20TH CENTURY BANK ACCOUNTING 


bank. As a rule, each bank issues circulating notes to the full extent permitted 
by law, and maintains this amount until there is a change in the capital. Since 
the amount of circulating notes which the bank can issue is determined by its 
capital, an increase in the capital would permit it to issue additional circulating 
notes. Banks have the privilege of reducing their circulating notes at any time. 

The circulation account shows the value of circulating notes issued at the 
time the bank is organized, and any increase or decrease in the same. 

Debit this account: Credit this account: 

(i) With the value of circulating (2) With the value of circulating 
notes withdrawn from circul- notes issued by order of the 

ation by order of the Comp- Comptroller of Currency at the 

troller of Currency. time the bank is organized, and 

with additional circulating notes 
that may be authorized. 

The balance of this account shows the value of circulating notes outstand¬ 
ing. It is shown as a liability on the Statement of Resources and Liabilities 
because the bank owes the amount to the holders of its circulating notes. This 
liability is offset by the resource represented by bonds deposited with the Comp¬ 
troller of Currency. 


DEPOSITS ACCOUNT 

§ 114. The Object of this Account is to show the total deposits received, 
the total checks issued by depositors and paid by the bank, and the total bal¬ 
ance due depositors at the close of the day. It is a controlling account for the 
depositors ledger or ledgers. The total balance due depositors, as shown by the 
balances in the depositors ledger or ledgers, must be the same as the balance 
of this account. 

Debit this account: Credit this account: 

(1) At the close of each business day, (2) At the close of each business day, 
with the total checks issued with the total deposits accepted 

by depositors and paid by the from depositors during the day. 

bank during the day. 

The balance of this account shows the amount due depositors at the close 
of each business day; it is an obligation of the bank and is listed with the lia¬ 
bilities on the Statement of Resources and Liabilities. 


CASHIER’S CHECKS ACCOUNT 

§ 115. The Object of this Account is to show the amount of cashier’s 
checks issued and paid and the balance remaining unpaid at the close of each 
business day. When all the checks issued by the cashier have been paid, this 
account will balance. 

Debit this account: Credit this account: 

(1) At the close of each business day, . (2) At the close of each business day, 
with the total cashier’s checks with the total cashier’s checks 

paid during the day. issued during the day. 

The balance of this account is an obligation of the bank and is shown as 
a liability on the Statement of Resources and Liabilities. 


ACCOUNTS 


69 


CERTIFICATES OF DEPOSIT ACCOUNT 


§ 116. The Object of this Account is to show the amount of certificates 
of deposit issued and paid and the balance due on certificates of deposit at the 
close of each business day. When all the certificates of deposit issued by the 
bank have been paid, this account will balance. 


Debit this account: 

(1) At the close of each business day, 
1 with the total certificates paid 
during the day. 


Credit this account: 

(2) At the close of each business day, 
with the total certificates is¬ 
sued during the day. 


The balance of this account shows the amount owed to temporary depositors 
who have accepted certificates of deposits as evidence of their deposits; it is 
an obligation of the bank and is listed with the liabilities on the Statement of 
Resources and Liabilities. The nature of the account is practically the same 
as that of a deposit, and the balance is usually listed on the Statement of Re¬ 
sources and Liabilities in connection with the Deposits account, but separate 
from it. 


CERTIFIED CHECKS ACCOUNT 

§ 117. The Object of this Account is to show the amount of checks 
certified and paid and the total due on certified checks which have not been paid 
by the bank. When all certified fchecks have been paid, this account will bal¬ 
ance. 


Debit this account: Credit this account: 

(1) At the close of each business day, (2) At the close of each business day, 
with the total certified checks with the total checks certified 

paid during the day. during the day. 

The balance of this account is an obligation of the bank and is listed as a 
liability on the Statement of Resources and Liabilities. 

INTEREST ACCOUNT 

§ 118. The Object of this Account is to show the cost of interest paid 
and the income from interest received. Interest may be paid to depositors on 
their average monthly balance, to depositors on certificates of deposit, to depos¬ 
itors on savings accounts, and to correspondent banks on their deposits with 
the bank. Interest is received for the use of money loaned by the bank and 
from correspondent banks for money deposited with them. The terms “paid” 
and “received” in connection with interest refer to cash paid for the use of money 
and cash received for the use of money. 

Debit this account: Credit this account: 

(1) With interest cost—that is, with (2) With interest income—that is, 
the amount of cash paid others with the amount of cash re- 

for the use of money. ceived from others for the use 

of money. 

The balance of this account shows the net income from interest. If desired, 
separate accounts may be kept with Interest Cost and Interest Income, in which 
case the balance of the former would show a loss and the latter a profit. When 
only one account is kept with Interest, its balance will usually be a credit be¬ 
cause the principal profit of a bank is the interest received for the use of its 


70 


20TH CENTURY BANK ACCOUNTING 


money. The debit side of the Interest account may be shown as a loss and the 
credit side as a profit, or the balance as a profit, on the Statement of Profit and 
Loss. 

At the close of each fiscal period it is necessary to calculate interest due 
the bank on interest-bearing notes which have not matured, also the interest 
on those notes which are not interest-bearing, but on which the interest was 
deducted when the note was discounted. This calculation will include interest 
on certificates of deposit, interest due to and from correspondent banks, and 
interest on deposits, if allowed. The Statement of the Business must show the true 
condition of the bank at the time the statement is made. Interest owed to the 
bank, but not shown in the Interest account is an asset and an income; interest 
owed by the bank, but not shown in the Interest account is a liability and a loss. 

DISCOUNT ACCOUNT 

§ 119. The Object of this Account is to show the interest cost in con¬ 
nection with notes or other commercial paper rediscounted with the Federal 
Reserve Bank or other banks. The purpose in keeping this record separate 
from the Interest account is to show the cost of rediscounts. 

Debit this account: Credit this account: 

(i) At the close of each business day, (2) At the close of each business day, 
with the charges for rediscount- with credits resulting from pre- 

ing notes during the day. paying rediscounted paper dur¬ 

ing the day. 

The balance of this account shows the loss of the bank on account of re¬ 
discounting notes or other commercial paper; it is shown as a loss on the State¬ 
ment of Profit and Loss. 

If desired, the transactions with interest and discount may be recorded in 
one account under the caption, Interest and Discount. This plan is followed 
in the practice set, but the accounts are discussed separately so that the student 
may understand that separate accounts may be kept. 

REDISCOUNT ACCOUNT 

§ 120. The Object of this Account is to show the result of transactions 
with the Federal Reserve Bank or other bank with which commercial paper 
has been rediscounted. The Federal Reserve Bank allows member banks to 
redeem rediscounted paper at any time prior to maturity. It is to the interest 
of a member bank to redeem rediscounted paper because the discount charge 
by the Federal Reserve bank is refunded at the time the paper is redeemed. 

Debit this account: Credit this account: 

(1) With the face of each rediscount- (2) With the face of each note or other 
ed note or other commercial commercial paper rediscounted 

paper at the time it is re- with the Federal Reserve Bank, 

deemed. 

The balance of this account shows the face value of notes rediscounted 
with the Federal Reserve Bank; it is a contingent liability and is shown as a 
deduction from the Loans and Discounts account on the Statement of Resources 
and Liabilities. This account has the same relation to the Loans and Discounts 
account as the Notes Receivable Discounted account has to the Notes Re¬ 
ceivable account. 

Note: The reference to Federal reserve banks in connection with rediscounted paper 
applies to member banks only. Banks which are not members of the Federal Reserve system 
would have a Rediscount account if commercial paper is rediscounted, even though it does not 
have transactions with the Federal Reserve Bank. 



ACCOUNTS 


7 


COLLECTION ACCOUNT 

§ 121. The Object of this Account is to show the cost of and the re¬ 
turns from collections. This includes the amounts paid to and received from 
correspondent banks, or sundry banks, for the collection of cash items, notes, 
drafts, trade acceptances and other commercial paper. 

Debit this account: Credit this account: 

(i) At the close of each business day, (2) At the close of each business day, 
with the total collection cost with the total returns from 

for the day, as reported by the collections during the day, as 

various tellers. reported by the various tellers. 

The balance of this account may be a debit or a credit, depending on 
the amounts received and paid for collections. A debit balance is shown as a 
loss on the Statement of Profit and Loss, and a credit balance as a gain on the 
same statement. If desired, the total of the debit side may be shown as a loss, 
and the total of the credit side as a gain. 

EXCHANGE ACCOUNT 

§ 122. The Object of this Account is to show the amounts received 
and paid for exchange on bank drafts. The nature of the account is the same 
as the Collection account, and the two are frequently combined into one ac¬ 
count. 

SAFETY DEPOSIT RENT ACCOUNT 

§ 123. The Object of this Account is to show the income from the 
rental of safety deposit boxes. The cost of mjintaining the safety deposit vault 
may be charged direct to this account or may be treated as one of the general 
operating expenses of the bank and the receipts from the rent as an income. 

Debit this account: Credit this account: 

(1) With the cost of operating this (2) With the income from the rental 
department, which includes the of safety deposit boxes and 

salaries of those who are in storage space, 

charge of it, and sometimes 
the proportionate part of the 
rent applicable to the space 
occupied. 

The balance of this account shows the net income from conducting this 
department; it is shown as a profit on the Statement of Profit and Loss. 

PROFIT ON SALE OF REAL ESTATE ACCOUNT 

§ 124. The Object of this Account is to show any profit that may re¬ 
sult from a sale of real estate that was purchased by the bank. When the real 
estate is sold, the account is credited with the cost value and a Profit on Sale 
of Real Estate account credited with the excess; if sold at a loss, a Loss on 
Sale of Real Estate account is debited. A special account should be kept with 
the profit or loss on each piece of real estate. 

The balance of the Profit on Sale of Real Estate account is shown as an 
income on the Statement of Profit and Loss, and the balance of the Loss on 
Sale of Real Estate account is shown as a loss. 


72 


20TH CENTURY BANK ACCOUNTING 


PROFIT ON SALE OF BONDS ACCOUNT 

§ 125. The Object of this Account is to show the profit on the sale- 
of a particular series of bonds. If desired, one account may be kept which 
will show the profit on the sale of all bonds. If separate accounts are kept with 
each series of bonds, separate accounts will show the profit or loss on the sale; 
if one general profit account is kept, the series is indicated in the explanation 
column of the ledger. 

The balance will be listed on the Statement of Profit and Loss as an income- 
If the bonds should be sold at a loss, a separate account would be kept to show 
this and its balance listed as a loss on the Statement of Profit and Loss. 


OPERATING COST 

§ 126. The Bank must pay certain expenses necessary in connection- 
with its operation. These expenses include salaries of employees, rent, heat, 
light, water, stationery and supplies, posters, freight and express on incoming 
and outgoing shipments, taxes, premiums on insurance policies, repairs, di¬ 
rectors' fees, premiums on surety bonds, attorneys’ fees, auditors’ fees, tele¬ 
graph and telephone service, and many other miscellaneous expenses. These 
operating expenses may be charged to one General Expenses account or they 
may be separated into a number of accounts. Thus, the salaries of executives 
and the board of directors may be shown in the Administrative Expenses account; 
the salaries of employees, in the Salaries account; check books, pass books, 
stationery, etc., in a Stationery and Supplies account; Government, state and 
municipal taxes, in a Taxes account; rent, heat, light, building maintenance, 
etc., in a General Expenses account; salaries of employees in connection with 
the selling of the services of the bank and advertising cost, in a Selling Expenses 
account; etc. 

The expenses of the bank are usually paid by cashier’s check made out 
in special voucher form. Salaries of employees showing the cost of services 
should be shown in the Selling Expenses account; it costs the bank to sell its 
services just as it costs the merchant to sell his goods. Formerly it was con¬ 
sidered poor policy on the part of banks to advertise, but it has long since been 
proven that the motto, “It pays to advertise,” applies to the banker as well 
as to the merchant. 


GENERAL EXPENSES ACCOUNT 

§ 127. The Object of this Account is to show all the operating cost 
of the bank. If desired, separate accounts may be kept with the various ex¬ 
penditures mentioned in § 126. 

Debit this account: Credit this account: 

(1) With amounts paid as operating (2) With any amount which reduces 
cost unless a separate account the operating cost charged to 

is kept with each. this account. 

The balance of this account shows the operating cost of the bank and is 
listed as such on the Statement of Profit and Loss. If only one General Ex¬ 
penses account is kept, the operating cost on the Statement of Profit and Loss 
should be substantiated by an analysis of the General Expenses account. If 
desired, the facts obtained from this analysis may be shown on the Statement 
of Profit and Loss instead of as a supporting schedule. 


STATEMENT OF THE BUSINESS 


73 


STATEMENT OF THE BUSINESS 

§ 128. The Statement of the Business for a bank is prepared for the 
same purpose as for a mercantile concern. It consists of two distinct state¬ 
ments—one showing the resources (assets) and liabilities, usually referred to 
as the Statement of Resources and Liabilities, and the other showing the income 
and. operating cost, usually referred to as the Statement of Profit and Loss. 
National Banks are required, upon request of the Comptroller of Currency, to 
prepare a Statement of Resources and Liabilities at the close of any business 
day. Statements for private banks are subject to the laws of the state in which 
the bank operates. 

§ 129. The Statement of Profit and Loss shows the income from the 
various departments, any special profits for the period, the operating cost, and 
any special losses that may have occurred during the period. Illustration No. 
47 shows the form of Statement of Profit and Loss required at the close of the 
practice set which accompanies this text. 

STATEMENT OF PROFIT AND LOSS, Merchants National Bank 
For six months ending Dec. 31, 192. .. 


PROFITS 

Interest and Discount. 

Collection and Exchange. 

Safety Deposit Rent. 

Profit on Sale of Real Estate. 

Profit on Sale of Stocks and Bonds 
Total Profits. 


$ 8,243.77 
409.30 
110.00 
1,550.00 
300.00 


$10,613.07 


LOSSES 

Salaries. 

Heat and Light. 

Stationery and Stamps. 

Express. 

Taxes and Repairs. 

General Expenses. 

Total Expenses 


$ 4,620.00 
99-15 
262.60 
81.50 
567.40 
216.65 


5 , 847.30 


Net Profit For The Period ... 


4 , 765.77 


PROOF 

Undivided Profits for Former Period. 

Surplus. 

Net Profit for Fiscal Period. 

Surplus And Undivided Profits 


700.00 
7,500.00 
4,765.77 


12,965-77 


Illustration No. 47. Statement of Profit and Loss. 
































74 


20TH CENTURY BANK ACCOUNTING 


§ 130. The Statement of Resources and Liabilities consists of the 
current, fixed and accrued resources (assets) and the current and accrued lia¬ 
bilities. The current resources (assets) are divided into four classes: (a) cash 
in the vault of the bank, (b) loans and discounts, (c) securities, and (d) amounts 
due from correspondent or other banks to which cash items have been sent for 
collection and remittance. The fixed resources (assets) may be divided into 
two classes: (a) the building and lot which is the home of the bank, and (b) 
the furniture and fixtures in the bank. Other real estate owned by the bank 
is held only temporarily, hence is usually listed as a current resource. The 
accrued resources (assets) may be divided into two classes: (a) accrued interest 
in connection with loans and discounts, and (b) prepaid taxes, stationery, ad¬ 
vertising matter, and other property purchased for use in the operation of the 
bank, but not yet consumed. The liabilities may be divided into four classes: 
(a) amounts due depositors, (b) amounts owed to other banks, (c) accrued 
liabilities, and (d) capital liabilities. Banks do not issue bonds, hence have no 
fixed liabilities. Illustration No. 47 shows the form of statement prepared at 
the close of the practice set which accompanies this text. 


STATEMENT OF RESOURCES AND LIABILITIES 


Merchants National Bank 
Dec. 31, 192. . 


RESOURCES 

Cash in Vault. 

Loans and Discounts. 

U. S. Bonds. 

Other Bonds. 

Federal Reserve Bank Stock. 

Redemption Fund, 5%. 

Chem. National Bank, N. Y. 

Corn Exc. Nat’l Bank, Chicago.. 

Fed. Reserve Bank. 

Sundry Banks. 

Real Estate. 

Banking House and Lot. 

Furniture and Fixtures. 

Accrued Assets. 

Total Resources. 

LIABILITIES 

Deposits 

Cashier’s Checks. 

Certificates of Deposit. 

Certified Checks. 

Depositors. 

Accrued Liabilities. 

Circulation. 

Capital Stock. 

Surplus and Undivided Profits.. . 

Total Liabilities 


$ 44,420.00 
134,890.76 
50,000.00 
13,500.00 
3,000.00 
2,500.00 
10,995.60 
29,524.85 
28 , 475-33 
1,020.40 

3,564-25 
12 , 356.75 
6,360.00 
1,310-25 


$i,ii 4-45 
9,100.00 
7 , 572.50 
210,200.19 
965.28 
50,000.00 
50,000.00 

12,965.77 


$341,918.19 


$341,918.19 


Illustration No. 48. Statement of Resources and Liabilities. 






































STATEMENT OF THE BUSINESS 


75 


§ 131. Entries to Close the Ledger. After the Statement of Profit 
and Loss has been prepared and approved by the board of directors, the accounts 
which appear on the Statement of Profit and Loss are closed by journal entry. 
Illustration No. 49 shows the form of journal entry required to close the accounts 
in Illustration No. 47. In this illustration, all the profit and loss accounts are 
closed in the Profit and Loss account and this account closed into the Undivided 
Profits account. If a part of the profit is to be set aside as Surplus, this would 
be shown in the journal entry. When the journal entry is posted, all the ac¬ 
counts on the Statement of Profit and Loss will balance. 


Dec. 31, 192. .. . 


Interest and Discount. 

Collection and Exchange. 

Safety Deposit Rent. 

Profit on Sale of Real Estate. 

Profit on Sale of Stocks and Bonds.. 

Profit and Loss. 

Profit and Loss. 

Salaries. 

Heat and Light. 

Stationery and Stamps. 

Express. 

Taxes and Repairs. 

General Expenses. 

To close the profit and loss accounts into the Profit 
and Loss account. 

Profit and Loss. 

Undivided Profits... 

To close the Profit and Loss account into the Undi¬ 
vided Profits account. 


$8,243.77 
409.30 
110.00 
1,550.00 
300.00 

5 , 847-30 


$10,613.07 

4,620.00 
99.15 
262.60 
81.50 
567-40 
216.65 


4 , 765.77 


4,765.77 


Illustration No. 49. Journal Entries to Close the Profit and Loss Accounts. 
























76 


20TH CENTURY BANK ACCOUNTING 


INDEX 


A Page 

A. B. A. Check, Defined, §20. 15 

Accounts with Depositors, §67. 38 

B 

Bank, Defined, §1. 5 

Private, §2. 5 

State, § 3. 5 

National, §4. 5 

Federal Reserve, §5. 6 

Savings, §7. n 

Trust Co., §8. 11 

Morris-Plan, § 9. 11 

Farm-Loan, § 10. 11 

Banks and Their Organization. 5 

Bank Drafts Register, § 76. 51 

Illustrated. 51 

Banking House and Lot, § 104. ... 65 

Bond, Defined, § 29.18, 19 

Illustrated. 20 

Bond Department, § 65. 37 

Bookkeeping Department, § 66.... 38 

Bookkeeper, § 34. 21 

Books of Account, § 73. 43 

Borrower’s Financial Statement, 

§49.27 

Illustrated. 28 

Business of a Bank. 13 

C 

Cash Account, § 94. 62 

Cashier’s Checks Account, § 115.. . 68 

Cashier’s Check, Defined, § 18. 14 

Illustrated. 14 

Cashier’s Checks Register, § 78... . 52 

Illustrated. 52 

Capital Stock Account, § 108. 66 

Certificate of Deposit Account, 

§ 116. 69 

Certificate of Deposit, Defined, 

§ 26. 18 

Illustrated. 18 

Certificate of Deposit Register, § 79 52 

Illustrated. 52 

Certificate of Stock, Defined, § 28 . 18 

Illustrated. 19 

Certified Checks Account, § 117.. . 69 

Certified Check, Defined, § 17. 13 

Illustrated. 14 


C—Continued Page 

Certified Checks Register, § 77 ... . 51 

Illustrated. 51 

Check, Defined, § 16. 13 

Circulation Account, §113 . 67 

Clearing House, § 71. 40 

Method of Clearing, § 72. 40 

Statement, Illustrated. 41 

Collateral Note, Illustrated. 27 

Collection Account, § 121. 71 

Collection Department, § 52. 29 

Collection Register,. 54 

Illustrated.54, 55 

Collection Tickler, § 83. 56 

Illustrated. 56 

Collection Teller’s Report, § 55... . 31 

Illustrated. 47 

Correspondent Banks, § 57. 31 

Correspondent Banks Account, 

§ 101. 64 

D 

Departments, § 35. 21 

Receiving, § 36. 22 

Paying, § 42. 24 

Exchange, § 45. 25 

Loans and Discounts, § 48. 26 

Collection, § 52. 29 

Transit, § 56.. 31 

Safety Deposit, § 64. 36 

Bond, § 65..... 3 7 

Bookkeeping, § 66. 38 

Depositor’s Ledger, § 85. 56 

Method of Making the Entries, 57 
Method of Making the Proof, 57 

A Subsidiary Ledger, § 88. 57 

Arrangement of Accounts, § 89. . 58 

Illustrated. 57 

Depositor’s Monthly Statement.. . 58 

Illustrated.58, 59 

Deposits, § 37. 22 

Deposits Account, §114 . 68 

Deposit Ticket, Illustrated. 23 

Depreciation, § 107. 66 

Discount Account, §119 . 70 

Disposition of Cash Items, § 40. 24 

Dividend Account, § 111. 67 

Draft, Defined, § 24. 16 

Illustrated. 17 











































































INDEX 


77 


E Page 

Entries to Close the Ledger, § 131. . 75 

Exchange, Defined, §19. 15 

Illustrated. 15 

Exchange Account, § 122. 71 

Exchange Department, § 45. 25 

Exchange Teller’s Report, § 47... . 26 

Illustrated. 45 

Exchange Wanted Blanks, Illus¬ 
trated . 26 

Executives, §32. 21 

Express Money Order, § 22. 16 

F 

Farm-Loan Bank, § 10. 11 

Federal Reserve Bank, § 5.6- 10 

Federal Reserve Bank Account, 

§ 100. 63 

Federal Reserve Bank Stock Ac¬ 
count, § 98. 63 

Foreign Bill of Exchange, Defined, 

§27. 18 

Illustrated. 19 

Function of the Reserve System, 

§ 10. 10 

Furniture and Fixtures Account, 

§ 106.'. 66 

G 

General Expense Account, § 127. . 72 

General Ledger, § 92. 60 

Illustrated. 60 

General Proof Sheet, § 75. 43 

Illustrated. 50 

I 

Identification Card. 37 

Interest Account, §118 . 69 

Internal Organization of a Bank, 21 


L 

Loans and Discounts Account, § 95 62 
Loans and Discounts Department, 

§48.... 26 


Loans and Discounts Register. § 80 53 

Illustrated. 54 , 55 

Loans and Discounts Teller’s 

Report, § 50. 27 

Illustrated. ■ 46 

Loans and Discounts Tickler, § 81 53 

Illustrated. . 53 

Losses of a Bank, § 13. 13 


M Page 

Machines in Bank Bookkeeping, 

§ 91.59 

Merchandise of a Bank, § 15. 13 

Messenger, § 70. 40 

Method of Clearing, § 72. 40 

Morris-Plan Bank, § 9. 11 

Mutilated Money, § 39. 24 

N 

National Bank, §4. 6 

Nature of Deposits, § 37. 22 

Note, Defined, § 23. 16 

Illustrated. 16 

No Protest, § 54, § 63.30, 35 

Notice of Collection, Illustrated. . 29 

Notice of Maturity, Illustrated. . . 30 
Notice of Overdraft, Illustrated. . . 39 

Notice of Protest, Illustrated. 30 

Numbering Depositors, § 62. 33 

Numerical Transit System, § 59. . 31 

O 

Operating Cost, § 126. 72 

Operating Cost of a Bank, § 14 . 13 

Other Bonds Account, § 97. 63 

Other Stock Accounts, § 99. 60 

Outline of Accounts, § 93. 61 

Overdraft, § 68. 39 

Notice of, Illustrated. 39 

P 

Pass Book, Illustrated. 22 

Paying Department, § 42. 24 

Paying Teller’s Report, § 44. 25 

Illustrated. 49 

Plan of Numbering, § 60.. 32 

Private Bank, §2. 5 

Post-Office Money Order, § 21. . . 15 

Process of Collection, § 53. 29 

Profits of a Bank, § 12. 13 

Profit and Loss Account, § 112. . . . 67 
Profit on Sale of Bonds Account, 

§ 125. 72 

Profit on Sale of Real Estate Ac¬ 
count, § 124. 71 

Protest, § 54, § 63.30, 35 

Provisional Credit, § 38. 23 

R 

Real Estate, § 105. 65 

Receiving Department, § 36. 22 

Receiving Teller’s Report, § 41... . 24 
Illustrated. 44 


































































78 


20TH CENTURY BANK ACCOUNTING 


R—Continued Page 

Redemption Fund Account, § 103 65 

Rediscounts, § 51, § 120.27, 70 

Remittance Register, § 84. 56 

Illustrated. 32 

S 

Safety Deposit Department, § 64. . 36 

Illustrated. 36 

Safety Deposit Rent Account, § 123 71 

Savings Bank, §7. 11 

Signature Card, Illustrated. 23 

State Bank, §3. 5 

Statement of the Business, § 128. . 73 
Statement of Profit and Loss, § 129 73 

Illustrated. 73 

Statement of Resources and Lia¬ 
bilities, § 130. 74 

Illustrated. 74 

Sundry Banks Account, § 102. 64 

Surplus Account, § 109. 66 


T Page 

Trade Acceptance, Defined, § 25. . 17 

Illustrated. 17 

Transit Department, § 56. 31 

Illustrated. 35 

Transit Letter, § 58. 31 

Illustrated. .32, 34 

Transit Machine, Illustrated. 34 

Transit Teller’s Report, § 61. 33 

Illustrated. 48 

Tellers, § 33. 21 

Teller’s Daily Proof Sheet, § 74. . 43 

Illustrated.44-50 

Trust Company, §8 . II 

U 

Undivided Profits Account, § no. . 67 
United States Bonds Account, § 96 62 



























ILLUSTRATIONS 


79 


ILLUSTRATIONS 

N°. Page 

1. Map of Federal Reserve Bank Territory. 8 

2. Certified Check. 14 

2a. Cashier’s Check. . 14 

3. New York Exchange. . .. 15 

4. Promissory Note. 16 

5. Sight Draft. 17 

5a. Trade Acceptance. 17 

6. Certificate of Deposit. 18 

7- Foreign Exchange. 19 

8. Certificate of Stock. 19 

9. Bond. 20 

10. Pass Book. 22 

11. Deposit Ticket. 23 

12. Signature Card. 23 

13. Exchange Wanted Blank. 26 

14! Collateral Note. 27 

15. Borrower’s Financial Statement. 28 

16. Notice of Collection. 29 

17. Notice of Maturity. 30 

18. Notice of Protest. 30 

19. Transit Letter and Remittance Register. 32 

20. Numbers of Cities and States in the U. S. 33 

21. Transit Machine. 34 

22. Transit Letter Prepared on a Machine. 34 

23. Transit Department. 35 

24. Exterior and Interior of Safety Deposit Vault. 36 

25. Identification Card. 37 

26. Notice of Overdraft. 39 

27. Clearing House Statement. 41 

28. Receiving Teller’s Daily Proof Sheet. 44 

29. Exchange Teller’s Daily Proof Sheet. 45 

30. Loans and Discounts Teller’s Sheet. 46 

31. Collection Teller’s Daily Proof Sheet. 47 

32. Transit Teller’s Daily Proof Sheet. 48 

33. Paying Teller’s Daily Proof Sheet. 49 

34. General Proof Sheet. 50 

35. New York Drafts Register. 51 

36. Certified Checks Register. 51 

37. Cashier’s Checks Register. 52 

38. Certificates of Deposit Register. 52 

39. Loans and Discounts Tickler. 53 

40. Loans and Discounts Register.54> 55 

41. Collection Register.54* 55 

42. Collection Tickler. 56 

43. Depositor’s Ledger Account. 57 

44. Statement of Account with a Depositor. 58 

45. Depositor’s Account and Statement Prepared on a Machine. 59 

46. Loans and Discounts Account. 60 

47. Statement of Profit and Loss... # . 73 

48. Statement of Resources and Liabilities. 74 

49. Journal Entries to Close the Profit and Loss Accounts. 75 








































































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